Time Warner 2015 Apple Bundle Negotiations Lead to Acquisition Negotiations –

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Apple CEO Tim Cook signals to open the door of the newly renovated Apple Store on Fifth Avenue on September 20, 2019 in New York City. (Photo by Kena Betancur / AFP) (Photo credit should read KENA BETANCUR / AFP via Getty Images)
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As AT&T and Discovery discussed setting up their content assets, they specifically structured a deal to give the combined company the flexibility to merge or sell later – perhaps to Apple.
Apple is one of the few companies with the track record to buy WarnerMedia-Discovery, a company that will likely have a market capitalization of over $ 100 billion when it begins trading publicly next year, subject to l regulatory approval.

But it’s not clear if Apple has an interest in a major media acquisition. Company history suggests CEO Tim Cook would avoid a big deal. The biggest deal Apple ever made was just $ 3 billion – for headphone maker Beats Electronics in 2014. To put that into perspective, Apple has a market valuation of over $ 2.1 trillion.

Apple’s growing market power is also increasingly watched by regulators and was the subject of a recent lawsuit by the maker of Fortnite Epic. Spending $ 100 billion or more on an outside company may sound alarm bells and whistles that Cook would rather not sound.

But, to quote a frequently used investment phrase, past performance is no guarantee of future results. Apple has made a relatively small investment in original content, with shows such as “Ted Lasso” and “The Morning Show,” and Apple TV + remains a minnow among streaming giants Netflix, Amazon Prime Video, Disney and all. new WarnerMedia-Discovery. If Apple is to compete, the easiest way is to buy a media giant – and there are already historic ties between WarnerMedia and Apple.

The Apple-Time Warner Speech

In 2015, Cook, Eddy Cue, senior vice president of software and Internet services at Apple, Jeff Bewkes, CEO of Time Warner, and former executive vice president of Time Warner Olaf Olafsson met to discuss opportunities for partnership around Apple exclusively offering Time Warner’s. content, according to people familiar with the subject. The meetings were reported by the Financial Times in 2016, but CNBC has learned additional details.
The four executives discussed offering Turner and HBO content outside of the wire harness for around $ 19 per month, said a person familiar with the content of the conversation, who asked not to be named because the discussions were private. While Time Warner already offered HBO Go separately from the traditional pay-TV ecosystem for $ 15 per month, taking CNN, TBS, TNT and other Turner networks out of the wider wire harness would have been a revolutionary step.

Even today, almost six years later, consumers cannot purchase a monthly subscription to a company’s linear networks separately from the larger wire harness. The larger idea of ​​selling direct to the consumer has pervaded the media ecosystem, with each major media company offering its own streaming product.

Executives discussed the possibility of Apple being the exclusive supplier of the offering, giving users of Apple devices the option to purchase the Time Warner bundle through the iTunes Store.

Over the course of a series of weeks, Apple and Time Warner have primed at the idea. Removing Turner’s networks from the wire harness would likely have led to a chorus of angry pay-TV distributors who thought they were paying for exclusive content. And Apple was already offering media content – movies and TV shows -om a slew of media companies through the iTunes Store. Time Warner wanted Apple to market the bundle worldwide, but Apple was reluctant to annoy its other media partners.

During the discussions, Bewkes and Cook brought up the subject of Apple’s acquisition of Time Warner to deal with one of the $ 19 a month concept’s biggest hurdles: what if Apple or Time Warner ultimately wanted withdraw? Once companies get the offer online, they will need to stay aligned. Walking away from the deal could be disastrous for the external relations of the two companies.

Cue expressed interest in a full acquisition, but Cook was ultimately not ready to pull the trigger on what would likely have been a nearly $ 100 billion deal, two people said. Neither Bewkes nor Cook initially expected the talks to lead to acquisition ideas, people said. Time Warner had succeeded in fending off a hostile takeover bid from Fox a year earlier.

A year later, at the end of 2016, Bewkes agreed to sell Time Warner to AT&T for more than $ 105 billion, including debt.

An Apple spokesperson declined to comment.

Other connection: Richard Plepler

Apple has another important connection to WarnerMedia – former HBO chief Richard Plepler.

Plepler left HBO after disagreeing with current AT&T CEO John Stankey over the direction of the premium network, as detailed by CNBC last year.

Months later, he signed a five-year contract with Apple TV + to produce television series, documentaries and feature films exclusively for the streaming service. The coronavirus pandemic has delayed production of most of Plepler’s efforts, but some of his work at Eden Productions is starting to catch on, such as the limited series “In With The Devil,” starring Greg Kinnear, Sepideh Moafi, Taron Egerton and Ray Liotta.

If Cook wants to know the details of HBO, he has someone on his payroll to ask.

Apple TV + only accounts for 3.7% of the company’s total service revenue, according to Barclays analyst Tim Long. Free trial periods end in July, which will likely lead to an increase in the unsubscribe rate. Apple TV + probably had around 40 million total subscribers – many of them in free trials – at the end of 2020, Barclays estimated.

“Overall, Apple TV + has underperformed original expectations after launching in late 2019,” Long said in a note to customers. “We believe Apple’s budget for original content production is much less than the amount Netflix has spent over the past decade. It could take years and not move the needle. “

If Apple is to stay in the streaming video world, Cook may have to forgo the company’s history by avoiding high-cost mergers and acquisitions. The WarnerMedia-Discovery deal is not expected to close until mid-2022. This gives Cook a year to seriously think about the future of his business.

WATCH: CNBC’s full interview with Discovery CEO David Zaslav and AT&T CEO John Stankey

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