Assume for a moment all antitrust and anticompetition laws have been set aside. You have earned and maintained the distinction as a leader at the forefront of the technology industry for more than 30 years. The reaches of your body of work are wide and far ranging, touching all aspects of the digital information age. Your success has resulted in liquid assets reaching $100 billion. What’s your next step? This not-so-hypothetical situation confronts Apple Inc., which after long trailing ExxonMobil, has dethroned the energy conglomerate to become the most valuable company in the world; the two companies have sparred back and forth for the distinction of having the highest market value. As of Jan. 25, Apple regained the distinction, reaching a market cap of roughly $419 billion. And Apple reported holding nearly $100 billion in cash. That tidy banked sum has prompted TechCrunch to spur intriguing online speculation as to what the Cupertino company ought to do next and some are looking to history for either a brilliant path forward or a negative precedent:
First, it would be helpful to get a little perspective on Apple’s cash stash: Google, another tech titan, closed last year with $44.6 billion in the bank; recent figures indicate that Facebook’s IPO has a valuation ranging from $75 billion to $100 billion. Acquisition of one or both of these companies could be a coup for Apple, though BGC Analysis Colin Gillis indicates that “a big acquisition [in the tech field] would probably be disastrous for Apple.”
If Apple instead decided not to make a major buy in its own filed,what else could it do with that cash sitting on in an ever-increasing bank account? One option is to share the wealth with shareholders through increased dividends or to offer share buybacks.
A more radical option would be to follow a path blazed by Sony, which sought to increase the overall value of the company, while expanding into new markets and allowing for greater control of an industry as a whole. Sony introduced the Betamax videotape format in 1975, allowing fans to record a program and watch it later or to bring home a movie rather than being limited to viewing it in theaters. A year later, rival company JVC introduced the VHS cassette. Over the next 15 years, Sony slowly lost the format battle between their Betamax and JVC’s VHS.
Analysts and techies looking back on the format war have identified reasons for Betamax’s demise. These include, the shorter running time of Betamax (60 minutes as compared to 180 minutes for VHS), an inability to gain appropriate licenses allowing content to be provided to customers on Betamax, and Sony’s refusal to allow pornography to be distributed in the Betamax format. Production of Betamax machines officially ceased in 1993 and Sony transitioned to developing high quality VHS cassettes and players.
Subsequent to Sony’s failed Betamax adventure, and likely keeping in mind Hollywood’s power to license its products on different formats and media, Sony purchased the MGM Studios lot from Warner Brothers in 1993. Through its new found presence in Hollywood, Sony began to be a major entertainment player, artistically and technologically. With the advent of DVD technology, Sony began developing a format allowing high definition audio and video, now known as Blu-Ray.
Blu-Ray, backed by Sony and Sony Pictures Studios, competed with the Warner Brothers backed HD-DVD. Ultimately, as all are now aware, Sony’s leverage as both a tech company and a Hollywood power guided Blu-Ray to the success that Betamax never enjoyed.
If Apple were to explore its options purchasing into Hollywood, what might its acquisitions be? Figures presented by TechCrunch suggest, Apple could easily buy Time Warner, Viacom and Dreamworks with market caps of $38 billion, $29 billion, and $1.6 billion respectively, leaving Apple still with an astonishing $30 billion in the bank. Assuming Apple were to buy one or more Hollywood players, it is likely that Apple would leverage itself so it could bring to homes all that Hollywood has to offer in radical new ways. Imagine watching a newly released film on your couch, streaming to your TV, rather than trekking to the local theater and paying for a $15 popcorn and drink combo. Or subscribing to a TV series by season or episode — erasing the need for cable TV. These options are possible as Apple already has the technology in place, but merely lacks the licensed content.
If Apple were to make drastic move, following in Sony’s footsteps, Hollywood as we know it today, could become like the Betamax — obsolete.