Why Apple would want to take on Netflix

A never-ending media industry rumour has resurfaced: According to a report in Hollywood trade publication Variety, later confirmed by other news outlets, Apple is exploring options to produce original online programming, the goal being to offer a video-streaming service to compete with front-runners like Netflix and Hulu.

The Variety article, citing unnamed sources, said it wasn't immediately clear whether the effort would be aimed at creating original TV series or movies, and whether Apple would engage outside production companies or try to set up its own in-house studio.

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But even though the potential initiative is said to be in the early, exploratory phases, it was enough to send Netflix's stock plunging eight per cent the following day.  

Netflix CEO Reed Hastings was even asked about the rumours on CNN and whether he was afraid Apple could steal some of his streaming-video service's customers.

"We've got so many great original shows out," he said.

"And other people are doing shows too. HBO is doing shows, FX are doing shows, BBC. So the fact that additional tech companies may be doing shows, that's really not that big a deal in the total number of shows being produced around the world."

But many tech and media industry watchers feel the ramifications would be massive. Apple is already one of the world's biggest distributors of music, TV and movies through its iTunes Store and the recently launched Apple Music streaming service.

"I have no doubt it will be true and it's a question of when, not if," said Los Angeles-based tech and media executive Peter Csathy.  

"This is a massively important strategic initiative for Apple, and it would certainly be [worth] tens of billions of dollars, if not more."

Years of rumours

Csathy said the rumour that Apple is interested in video streaming original content has been circulating for years in Hollywood.

So why now? And what would the benefits be for the tech giant?

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Will Chu, a technology research associate at Credit Suisse in New York, said the same question could be asked of the company's decision to launch its Apple Music streaming service two months ago — years after Spotify, Deezer and other rivals.

"Maybe Apple was looking at Netflix and seeing that they were very successful, and decided that, looking at their own balance sheet and brand, this is something they could be successful at and take business from Netflix, like they're trying with Spotify," Chu said.

There's no question Apple's balance sheet is propitious — the company is sitting on more than $200 billion US in cash reserves. Realistically speaking, it could buy up an entire Hollywood studio if it wanted.

It's also not uncharacteristic for Apple to arrive a little late to the game but quickly take over and dominate. It wasn't the first to manufacture tablet computers or portable media players, but its iPad and iPod devices have become touchstone brands.

And producing its own content would complement its already rich ecosystem of media-ripe hardware like the iPhone, iPad and Apple TV, as well as its iTunes content distribution platform.

"Being able to generate content and stream content wouldn't be particularly difficult from a technical standpoint, and they already have all the users," Chu said.

Or as Csathy put it: "That's its playbook. It brings people to the world of Apple through its services, through its content, through its apps, and then it monetizes them through its hardware."

Risky business

Apple has already dipped its toes into original content production with a series of music videos for top recording artists. Diversifying its original content offerings would be a way to differentiate itself from other streaming services to attract more users.

But this venture is not without risks.

Producing new series or movies means tying the company's brand to the contents of the programming. If it's too edgy , it could offend some of Apple's traditional hardware customers — think school boards and middle-class parents — and trigger a backlash. If it's too tame, the company's sleek image might take a hit.

And it's not a sector without failure. Microsoft embarked on a content-producing venture in 2012 under its Xbox brand, Xbox Entertainment Studios, but shut it down last year.

It could also be that, as it has done many times before, Apple is testing the waters behind the scenes and may never launch an actual product or service.

"The thing about Apple is they spend years testing an idea," Chu said. "They may be investing in it but doesn't mean it's coming out."