Apple's Rift With Comcast Complicates Potential NBCU Deal
Analysts say that since ABC, CBS and Fox are likely to be on board, NBCU could be required to play nice with Apple.
Despite Comcast saying it is not talking to Apple about NBCUniversal being part of an upcoming streaming service, analysts said Friday that the tech giant and media conglomerate are likely to hit the bargaining table soon, with a deal in the offing.
In part, that's because Comcast, in order to get regulatory approval for its acquisition of NBCU, agreed four years ago to a host of complicated conditions that include licensing its content to any Internet service that also has content from NBCU's competitors.
Analysts say that since ABC, CBS and Fox are likely to be on board, NBCU could be required to play nice with Apple whether it wants to or not.
Apple did not respond to a request for comment. Comcast and NBCU declined to comment. Some who are close to the situation, though, say that Apple is just posturing by ignoring NBCU. "It's them negotiating a deal," one insider told The Hollywood Reporter.
Tony Wible of Janney Montgomery Scott says "there is little chance" that Apple launches a service without NBCU on board. "Comcast was forced to do these types of deals under the NBCU merger consent decree as long as terms are comparable to other deals in the industry."
Comcast, though, revealed in a letter sent Thursday to the FCC that Apple has not even contacted NBCU about licensing channels for its upcoming service. That letter was sent in response to claims — lobbed by a group that is against Comcast's proposed merger with Time Warner Cable — that NBCU was withholding content from Apple in order to thwart competition.
"Not only has NBCUniversal not 'withheld' programming from Apple's new venture, Apple has not even approached NBCUniversal with such a request," reads Thursday's letter, which was addressed to FCC Secretary Marlene Dortch and signed by Francis Buono, counsel for Comcast.
Apple's service is expected to launch in September with a skinny bundle of 20-30 channels at a cost of up to $40 a month.
The Wall Street Journal reported on March 17 that Apple is snubbing NBCU because of a rift with Comcast. The bad blood stems from an alleged partnership on a streaming TV platform that eventually fizzled when Apple concluded that Comcast was just stringing it along.
It wouldn't be the first time Comcast has faced such a complaint. A decade ago it avoided a patent lawsuit by striking a deal for a souped-up DVR service with TiVo, but after years of inaction only a few minor upgrades in certain geographic areas materialized.
Katy Huberty of Morgan Stanley told her clients early on that NBCU will be part of Apple's service, regardless of any ill will that might exist between Apple and Comcast.
"While Comcast is reportedly not involved yet, its settlement with the U.S. Department of Justice for the NBC deal means that NBC must 'make available' to online video distributors the same package it sells to traditional distributors, and it must offer content that is 'similar to, or better than' what is offered by its peers," Huberty wrote in a research note.
Huberty opines that Apple will charge $30 per month for its service, which will consist of 25 channels that will cost Apple $19.40 per subscriber each month in affiliate fees. She figures Apple can attract 15 million U.S. subscribers and garner $5.4 billion a year in subscription revenue and another $100 million annually in ad revenue.
The analyst even lists the 25 channels she presumes will be included, three of which are owned by NBCU: Bravo, which she estimates will cost Apple 24 cents per subscriber per month, NBC (48 cents), and USA (70 cents).
"Apple's demonstrated the capacity to build very good products and change less complicated industry ecosystems in the past, but it's hard to say how impactful they'll be in television until the product is in the market," said Brian Wieser of Pivotal Research.
Wieser also says there's big opportunity for ad revenue for online video. While national television ad revenue will hit $42.6 billion in 2019, a 17 percent gain over 2014, online video advertising revenue will explode 141 percent in that timeframe, to $9.1 billion.
"Apple needs NBC and NBCU channels to differentiate and provide ease of use," said Steve Birenberg of Northlake Capital Management. "Having to switch to a different app or a different HDMI port adds a complication that will eat into the cost savings. People like their TV simple."