Apple (NASDAQ: AAPL) has announced plans to release a new version of Apple TV. It will allow users to stream some 20-30 channels of content, including most of the major networks and some of the most popular premium channels presently available.
This is a huge move for content consumption, and it has opened the gates to the next phase of content delivery and choice for consumers. We are now in the twilight era of traditional bundled cable, as multiple channels now offer on-demand streaming, and devices like Roku allow you to access them all in one place.
We are headed toward true a la carte delivery of content, but that doesn’t mean that traditional distributors are going to just stand by and let it happen.
The threat of this new model is mostly targeted at cable and satellite companies. If you can stream anything you want on your computer or tablet or TV, and not have to deal with a bevy of channels that don’t interest you, then these providers are in danger of “cord cutters.” This means that subscribers can cancel cable or satellite services because the content they care most about is available to them via alternative methods.
This must be terrifying to Time Warner Cable (NYSE: TWC), Charter Communications (NASDAQ: CHTR) and Comcast (NASDAQ: CMCSA). These companies’ entire reason for existence is monthly subscriber fees. In recent years, they have been able to diversify into providing Internet service, and Time Warner has even moved into telephony and home security.
This is why Comcast has been stubborn about working with Apple. You see, Comcast owns NBCUniversal, which is both a movie and TV studio. From Comcast’s perspective, why would they offer content from their networks (NBC, USA, Syfy, CNBC, MSNBC, Bravo, E! and Telemundo) to any other distributor?
If they did this, especially by providing Apple the premium stuff like NBC and USA, then they risk having consumers cancel their Comcast cable TV subscriptions to flock to Apple TV for those premium networks.
There’s a wrinkle, though. When Comcast bought NBCUniversal, the deal required Comcast to provide NBCUniversal’s content to distributors on “a comparable basis to its competition.” In other words, if The Walt Disney Company (NYSE: DIS) and all the other studios are providing content to Apple, then Comcast will also be required to do so.
That brings up the issue of cost. Apple doesn’t get this content for free. Obviously, Apple wants to price the service appropriately to attract consumers. In order to get the right price point, it has to make sure it pays the correct price for all the different content it gets so it can make a profit from the venture.
The content providers are happy to sell their content to Apple. That just means more revenue that can be earned for selling that content. However, if the result is cord cutting, then Comcast has to be particularly careful about what it sells its content for, to compensate for any potential customer losses.
What’s the play for investors?
First of all, regardless of this drama, you want to own Apple for the long term. It’s the ultimate GARP stock.
As for Comcast, I’m lukewarm on owning cable companies in an era where their primary source of revenue may begin to decline. I’d sell the cable companies now.
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