With sports now a “golden goose” begetting streaming progress for Apple, it would be a “no-brainer” for the tech giant to partner with or even fully acquire ESPN.
That’s the latest take from Wedbush Securities analyst Daniel Ives, a longtime Apple bull, who laid out the case to clients in a research note Wednesday.
Apple TV+ has about 50 million subscribers today, Ives estimates. The tech company has never divulged numbers for the nearly 4-year-old service, whose results are reflected in the broader Services line in its financial statements. In the quarter ending June 30, Apple topped 1 billion paid subscriptions to all services, including iCloud, Apple Music, Apple TV+ and others, with revenue in the segment gaining 8% over the prior-year period to reach $21.2 billion.
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After a sluggish start in its first year, Apple TV+ found its stride with the Emmy-winning Ted Lasso and Oscar-winning CODA and then began to supplement its film and TV programming with live sports. The company acquired Major League Baseball rights and formed a joint venture with Major League Soccer, with the recent arrival of Argentina World Cup hero Lionel Messi at Inter Miami providing a subscriber draw. Even though the tech giant’s tentative deal for exclusive Pac-12 football rights fell through (on the heels of talks with the NFL for Sunday Ticket rights also fizzling), Ives believes the company will not be denied.
“The massive appetite for live sports content remains the laser focus for Cupertino now to boost its streaming future and further tap into its massive installed base of 2 billion iOS devices worldwide,” Ives wrote. “We believe the answer and the shoe that fits for Apple is the golden ESPN assets which potentially may be on the table in one form or another as [Disney CEO Bob] Iger and the Board strategically and carefully look at Disney’s core assets over the coming months.”
Iger said last month the company is looking for a strategic partner to help ESPN navigate the stand-alone streaming waters. On last week’s quarterly earnings call, the exec said the goal is securing a strategic partner to help with “distribution, technology, marketing, and content opportunities where we retain control of ESPN.” He noted that Disney has “received notable interest from many different entities” in recent weeks.
A bulked-up ESPN direct-to-consumer offering is expected to launch in the next couple of years at a time when linear TV subscriber levels continue falling and sports rights fees keep escalating. A key decision looms for ESPN with the NBA, with those rights due to expire in 2025. Speculation has centered on Apple, Google and Amazon as potential partners whose troves of cash could help Disney and ESPN manage to pay rights fees at a time of austerity for the company and the overall media sector. The scenario of a full spin-off or sale of ESPN has been downplayed by Iger, who has expressed a preference for keeping the sports brand in the corporate fold. At the same time, he has said linear TV networks including ABC and FX “may not be core” to the company, leading some observers to believe that all of ESPN is potentially in play.
As speculation swirls around ESPN, an age-old rumor has also been resurrected: Apple buying the entire Walt Disney Co. Asked about it on the call, Iger said it is “not something we obsess about,” especially given the current regulatory environment.
Ives sees ESPN as “much more attractive to Apple than Disney overall.” He did note that Apple has generally not been aggressive in terms of M&A deals, at least in terms of high-valuation transactions. Its priciest deal to date has been the $3 billion acquisition of Beats in 2014. Despite that track record, Ives wrote, “The market is quickly changing and Apple recognizes that in this streaming arms race there is a ‘closing window’ for the stalwart to acquire content and cement its footing in the live sports content arena.”
A full acquisition would likely cost Apple more than $50 billion, Ives estimates, and the transaction would undoubtedly draw a great deal of regulatory scrutiny. The analyst noted the “hawkish” tone set recently by officials like Federal Trade Commission chair Lina Khan.
Even so, Ives says an ESPN roll-up or major partnership “would make a ton of strategic sense” for Apple, helping it “gain valuable sports content, major TV rights across each of the major professional and college sports packages, and change the cross-sell opportunities and attractiveness of Apple TV looking ahead while putting Apple on the sports map, globally speaking.”
While there are a lot of “moving parts in the Disney situation,” Ives acknowledged, there is a “strong relationship” between Iger and Apple CEO Tim Cook. The Disney CEO appeared at Apple’s June developer conference to tout the media company’s involvement in Apple’s new virtual reality headset initiative. Cook’s predecessor, Steve Jobs, was also a close associate of Iger’s. The Disney exec wrote in his 2019 memoir that if Jobs had remained alive into the modern streaming era, “We would have combined our companies, or at least discussed the possibility very seriously.”
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