By Tripp Mickle
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 20, 2019).
Apple Inc. has been exploring opportunities to strengthen its
upstart TV service, including deals for James Bond franchise-owner
MGM Holdings Inc. and college sports rights, according to people
familiar with the matter.
Executives at Apple met with representatives of MGM and the
Pac-12 Conference this year as the tech giant considers ways to
broaden the appeal of its Apple TV app and TV+, a $4.99 monthly
service that launched last month with nine original programs. The
streaming service anchors an updated TV app that offers
subscriptions to Disney+ and HBO, with Apple getting a cut of
sales.
Though the conversations with MGM and the Pac-12 were
preliminary and have yet to reach an advanced stage, the talks show
Apple's openness to striking a multibillion-dollar content
agreement in support of its TV service -- even as it forges ahead
with a preferred strategy of developing its own shows, these people
said. A deal with the Pac-12 would be Apple's first foray into live
sports.
Apple is playing catch-up in a TV arms race with Amazon.com Inc.
and others seeking to displace traditional cable operators as the
dominant media service in people's homes. Consumers have turned to
services such as Netflix Inc. as they sever ties with cable
operators. Amazon and Apple are looking to increase their revenue
by selling subscriptions to their own streaming-video services and
rival offerings from competitors.
Amazon Prime Video service, launched in 2006, has become a hub
for an estimated $2.6 billion in subscription sales to channels
such as Showtime and Starz, according to BMO Capital Markets. The
company has netted those sales from customers drawn to an Amazon
video service that offers original shows, licensed movies and
National Football League games.
Apple's updated TV app and TV+ programs mirror Amazon's offering
but provide a fraction of the shows. A deal for sports rights or a
film library could deepen the offering and pull in more users who
might also sign up for subscriptions to Disney+, HBO and more.
Apple, which has $206 billion in cash, has been reluctant to cut
big deals in the past. Its biggest deal -- the $3 billion
acquisition of Beats Electronics LLC in 2014 -- helped the company
jump-start its music-streaming business.
The Apple Music business became the catalyst for the launch of
subscription services for videogames, news and TV. Those and other
paid subscriptions have become a big contributor to a services
business at Apple that increased sales 17% to $46.29 billion in the
fiscal year ended in September.
Apple wants to surpass 500 million paid subscriptions in this
fiscal year. It currently has 450 million paid subscriptions, a 36%
increase from the 330 million it reported for fiscal 2018.
"There aren't a lot of potential acquisitions that could
meaningfully change that trajectory," said Matthew Ball, former
head of strategy at Amazon Studios. Still, he said a deal for MGM
or a studio of that size would expand Apple's content offering,
improve new-show development and accelerate growth.
The meetings with MGM included Apple's head of mergers and
acquisitions, Adrian Perica, said people familiar with the matter.
The discussion came as MGM sought a distribution partner in
February for its Epix cable channel. The company also had
discussions with Amazon and others.
Though Apple wasn't interested in Epix, Eddy Cue, Apple's head
of services, has continued to discuss the possibility of a deal for
MGM with Apple advisers, according to some of these people.
MGM could fetch as much as $10 billion, some of these people
said. The company is owned by several private-equity firms,
including Anchorage Capital.
A deal for MGM would give Apple rights to a film library that
includes James Bond and "Silence of the Lambs," as well as TV shows
such as "Fargo" and "The Addams Family." Apple could offer the
shows and films on demand or create new versions of them without
having to pay licensing fees.
More recently, Mr. Cue met with Pac-12 Conference Commissioner
Larry Scott about the conference's effort to sell an equity stake
in its media rights package, valued at up to $5 billion, that
includes the Pac-12 Networks and all marquee football, basketball
and live sports programming that is fully available in 2024,
according to people familiar with the discussions. The conference
includes the University of Southern California, the University of
Oregon and Stanford University.
Mr. Cue has questioned the value of a deal with the Pac-12
because it would only give Apple rights to some games, people
familiar with his thinking said. He also recognized that if Apple
ever secured rights to all of the conference's best programming, it
would need to show some of those games on traditional broadcast TV
to satisfy fans.
The conference continues to search for strategic partners for
its media rights and has recently had talks with Apple and Amazon,
among others, people familiar with the matter said.
Mr. Cue's interest in the Pac-12 shows Apple's approach to
sports could eventually go beyond the notifications of coming games
and real-time scores it currently offers in its TV app.
The sports industry has largely depended on traditional media
companies for more than $20 billion in annual rights, putting it in
a precarious position in a changing media landscape. The NFL,
college sports' Southeastern Conference and others are due to
negotiate new media deals in the coming years.
Showing Pac-12 games would help Apple prove it is a viable home
for sports should it pursue the rights to another league.
Mr. Cue is a big fan of Duke University basketball -- his alma
mater -- and the National Basketball Association's Golden State
Warriors. His boss, Chief Executive Tim Cook, is a big fan of his
alma mater's football team -- Auburn University, which plays in the
SEC.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
December 20, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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