Apple TV Might Disrupt Cable Operators

03/31/2015 7:00 am EST

Focus: STOCKS

Chris Lau, of Kapitall.com, explains that this computing giant may now be planning to launch a TV service and he analyzes the competitors that will face pressure as a result of this new wrinkle in the realm of Pay-TV and cable service, as well as the key differentiator that could set the company apart.

Apple is rumored to be rolling out a TV service. What could that mean for competitors?

Apple (AAPL) is expanding its business once again. This time, the computing giant is planning a TV service. According to The Wall Street Journal, Apple is talking with programmers as it plans a bundled service in the fall. Disney-owned (DIS) ABC, CBS (CBS), and Fox (FOX) are reportedly part of the 25-channel package.

NBCUniversal is apparently being left out, due to Apple and Comcast’s (CMCSA) inability to work out a deal.

Competition Heats Up

At first glance, Netflix (NFLX) and Amazon (AMZN) will face greater competition as a result of Apple’s plan, but these firms offer inexpensive on demand services. Apple is late to the game and will likely have trouble building up the kind of subscriber base that Netflix has.

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Pricing may be a key differentiator that gives both Amazon and Netflix an edge. If Apple charges $30 to $40 per month, or $360-$480 per year, that cost will be much higher than Netflix’s $9 per month and Amazon Prime’s $99 per year.

Need for Content

Apple’s primary focus is hardware. The wildly successful iPhone and iPad earn healthy profits for Apple. Bundling content and making it available on all Apple devices would help the company boost its uniqueness in the marketplace.

Pay-TV and Cable under Pressure

TV offered over the Internet will continue to pressure cable firms like Dish Networks (DISH). While cable TV could once show 15 to 20 minutes of ads for every hour of programming, that luxury is no longer an option. Consumers are flocking to Netflix and prefer to watch content on mobile devices.

Apple TV’s bundling offer may disrupt the cable market, but the success depends on a few things. First, the monthly cost might need to fall. Second, the content may need to be delivered with far fewer commercials.

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NG May—Daily Chart
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1. Apple Inc. (AAPL, Earnings, Analysts, Financials): Designs, manufactures, and markets personal computers, mobile communication, and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide. Market cap at $717.90B, most recent closing price at $123.25.

2. Amazon.com Inc. (AMZN, Earnings, Analysts, Financials): Operates as an online retailer in North America and internationally. Market cap at $172.08B, most recent closing price at $370.56.

3. CBS Corporation (CBS, Earnings, Analysts, Financials): Operates as a mass media company in the United States and internationally. Market cap at $30.48B, most recent closing price at $61.21.

4. Comcast Corporation (CMCSA, Earnings, Analysts, Financials): Provides entertainment, information, and communications products and services in the United States and internationally. Market cap at $142.03B, most recent closing price at $55.94.

5. The Walt Disney Company (DIS, Earnings, Analysts, Financials): Operates as an entertainment company worldwide. Market cap at $179.27B, most recent closing price at $105.48.

6. Dish Network Corp. (DISH, Earnings, Analysts, Financials): Provides direct broadcast satellite (DBS) subscription television services in the United States. Market cap at $32.62B, most recent closing price at $70.63.

7. Twenty-First Century Fox Inc. (FOX, Earnings, Analysts, Financials): Operates as a diversified media and entertainment company worldwide. Market cap at $70.88B, most recent closing price at $33.70.

8. Netflix Inc. (NFLX, Earnings, Analysts, Financials): Provides subscription based Internet services for TV shows and movies in the United States and internationally. Market cap at $25.09B, most recent closing price at $414.77.

(List compiled by Chris Lau. Monthly returns data sourced from Zacks Investment Research. All other data sourced from FINVIZ.)

By Chris Lau of Kapitall.com

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