Apple Inc. (NASDAQ:AAPL) shares have jumped nearly $20 after rumors of a deal with Comcast Corporation (NASDAQ:CMCSA) surfaced. The rumors suggest that Apple and Comcast are negotiating priority Internet delivery for Apple’s streaming video service, which has been rumored to be in the works for some time. If this deal really ends up happening, it could have some implications for other video streaming providers in the market, like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN).
What the deal may mean for Apple
Analysts have long been saying that Apple Inc. (NASDAQ:AAPL) is working on a broader TV product than its Apple TV set-top box. In a report dated March 24, 2014, Baird analysts William Power, Steven Beckert and Andrew Flis note that this latest rumor does add some specifics to the rumors we’ve been hearing. Of course they, like most other analysts, see television as being a significant opportunity for Apple in the long term.
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If Apple Inc. (NASDAQ:AAPL) is able to talk Comcast Corporation (NASDAQ:CMCSA) into a deal, they believe it might be good for Comcast at first because it could drive broadband demand. However, in the long term, they see a threat for video.
The Baird team also pointed to previous rumors about Apple Inc. (NASDAQ:AAPL) striking up a deal with Time Warner Cable Inc (NYSE:TWC). At that time, Apple was said to be talking with Time Warner to deliver its video content through the Apple TV box. They note that this rumor is different than Apple’s supposed deal with Comcast Corporation (NASDAQ:CMCSA), which implies that Comcast will just provide the Internet over which Apple will provide content. The deal would supposedly give Apple priority for “the last mile,” which would reduce buffering and other problems.
Implications for Netflix
The report also indicated that Apple Inc. (NASDAQ:AAPL) would provide live streaming in addition to on-demand videos. This would suggest that it is more of a replacement for cable rather than a direct competitor to Netflix, Inc. (NASDAQ:NFLX). In addition, the Baird analysts also say this could be a fairly low margin revenue stream for Apple.
They note that Apple Inc. (NASDAQ:AAPL) is pretty late to the content game, as Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) have been signing deals for exclusivity on content for a number of years. This means it could be harder for Apple to put together a streaming TV service which is truly compelling.
What about Apple acquiring Netflix?
The analysts also consider the possibility of a buyout deal between Apple Inc. (NASDAQ:AAPL) and Netflix, Inc. (NASDAQ:NFLX). Of course this would certainly be uncharacteristic for Apple, which has never made any large acquisitions, as Netflix would be. Of course Netflix does have a head start on content exclusivity. However, if Apple really is close to signing a deal with Comcast Corporation (NASDAQ:CMCSA), it sounds like the company is already close to finalizing its own video streaming platform.