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Reasons Why Apple Won’t Buy Netflix

Did you catch the latest episode of Analysts Say the Craziest Stuff? It’s a one-off where JPMorgan analyst Samik Chatterjee spins a fantastic tale about how Apple could buy Netflix to instantly become a content leader.

The premise is based on Chatterjee’s belief that Netflix’s existing leadership position in engagement and original content could vault Apple to the top of the streaming heap.

Netflix illustration
It’s a compelling idea at first blush, and in fairness to Chatterjee, it’s just conjecture — there isn’t even the whiff of a legit rumor here. Still, there’s no reason to believe it would happen anytime soon. Here are eight reasons why.

The Young and the Restless
The streaming industry is experiencing unprecedented growth, with many new players entering the field. Apple, which is developing its own streaming content, is entering crowded turf with a significantly lower spend than Netflix ($1 billion versus $8 billion), but it’s simply too early for such a major consolidation.

A look at the early days of the film industry offers some perspective. At the turn of the 20th century, there were more than a dozen tiny film studios cranking out shorts. Charlie Chaplin famously hopped from one to another until he finally started his own studio, United Artists. The consolidation of the film industry didn’t get going in earnest until the mid-1930s, and then continued over the next few decades, partially in response to antitrust cases that prevented studios from owning theaters. If they couldn’t own the whole distribution channel, studios figured they may as well gobble up smaller companies that were struggling anyway.

A New Toy
With a handful of home-grown shows (Planet of the Apps, Carpool Karaoke), Apple’s just getting started in the original content game. It has well over a dozen scripted projects in production and is finally starting to buy up original films.

Buying Netflix would give Apple a ready-made production arm but little understanding of how it all works. At the very least, Apple would demand a much deeper understanding of Netflix’s metrics before a purchase, and not everyone believes the few numbers Netflix has released so far. Apple would probably like to learn more through its own streaming efforts first — and whatever it has gleaned from Carpool Karaoke definitely isn’t enough.

The Prude
Apple’s plan for original content revolves around family-friendly fare. It has reportedly already axed one completed series over concerns about racy content. Though Apple has no problem hosting more adult fare produced by other studios in its iTunes movie library, it probably wouldn’t slap its brand on something like Orange Is the New Black, which included its share of explicit sex scenes, or even Netflix’s occasionally ultraviolent Daredevil.

The Price Is Too Damn High
Apple has been steadily working toward a cash-neutral position for more than a year, shedding over $100 billion in the process. That leaves Apple with $130 billion in cash based on its last earnings report. Yes, Apple would like to unload it, and yes, acquiring other companies is a perfect way to do it. But Apple might have to spend all that money and more to acquire Netflix. Spending all that cash in one place, or even a significant portion of it, simply isn’t very Apple-like.

There is zero indication that Netflix wants anyone, let alone Apple, to acquire it.

Too Big for My Tastes
Aside from the $3 billion Beats acquisition, which gave Apple the trifecta of hardware, a subscription service, and access to major artists through music moguls Dr. Dre and Jimmy Iovine, Apple doesn’t trade in giant, big-name-brand companies. In general, Apple likes to quietly acquire smaller firms for high-value tech integration. Apple rarely acknowledges the transaction until well after the fact. A monumental Netflix acquisition doesn’t fit its profile.

Just Say No
There is zero indication that Netflix wants anyone, let alone Apple, to acquire it. Though Netflix CEO Reed Hastings was busy selling off shares just a couple years ago, which could be construed as a sign that Hastings had concerns about future company performance, he was really just cashing in on the company’s skyrocketing share price.

Netflix’s incredible viewership numbers (something it only recently started sharing) and its near industry-leading number of Oscar nominations make it even less likely that the company is hunting for a new parent.

Too Close
With Netflix on Apple TV hardware, the two companies already have a manufacturer/partner relationship. Apple buying up Netflix could set off some antitrust alarm bells, as Apple would own everything from content creation to distribution to hardware. Granted, Amazon gets away with it through Amazon Studios, but that grew organically out of Amazon Prime Video. On the other hand, if Apple does make a move on Netflix, the entire industry might find itself under new scrutiny.

The Price of Eyeballs
If Apple buys Netflix, it’s not getting some monster studio like Warner Brothers, Sony’s Columbia Pictures, or 21st Century Fox. Netflix isn’t a traditional studio: It’s a producer and distributor, working with or contracting independent studios and filmmakers to produce original content for the streaming service. What Apple would be getting for all those billions of dollars is ultimately a subscriber base of 139 million people. That’s a lot of people, but the value to Apple is questionable.

Chatterjee’s little tale won’t be winning any awards, but Reasons Why Apple Won’t Buy Netflix?