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'Pressing need' for Apple to get into original content

Michelle Clancy

Apple should start making movies and TV. In fact, it could even set up its own studio.

That's the assessment of equity analyst Steven Mallas, who argues that Apple should "get into the business of designing stories" because it has cash to burn, and because over time the risk of investing in content creation will be far outweighed by increasing shareholder value over time by exposure to entertainment.

In an analysis, Mallas said that Apple could compete with Big Media and over-the-top (OTT) companies alike. To not do so would see it left behind.

"Google got into content and advertising revenue via YouTube," he said. "Amazon.com started Amazon Studios. Apple will need, at some point, to start designing storyboards and chasing copyrights in addition to drawing schematics and filing patent applications."

Apple has a market cap well over $700 billion, so it does have the funds to invest into its Apple TV 'hobby'. Mallas said that Apple can take a page from HBO, which Apple has an exclusive deal with to distribute the HBO Now OTT service, and Netflix — both of which use original content to enhance their core products.

"What is the value of the HBO brand today? Is it based on re-runs of an old 80s movie starring Molly Ringwald, or is it tied more closely to Game of Thrones and Girls?" he said. "Shows like the latter have upgraded HBO in the minds of many consumers of entertainment, and the proper curation of such content helps to differentiate a service."

Netflix is in a similar situation.

"Output deals are important and can help serve as a backbone, but House of Cards and Orange Is the New Black help push consumers from the maybe-I-should-subscribe to the I-should-subscribe mindset," Mallas noted.

Similarly, Apple could use original shows and movies to make its Apple TV platform more valuable.

"There is enough money in Apple's coffers, of course, to start a new Pixar-like animation house," said Mallas. "A combination of acquisitions and internal studio creations would not be a bad idea."

Shareholders however may be warded off embracing the idea for two key reasons. For one, it's hard to quantify the risk of content production. "A faster processor speed has more inarguable value than a movie about zombies fighting vampires," Mallas said. And second, transparency in the field of movie economics is nonexistent.

"Fair points, but they probably shouldn't discourage shareholders from encouraging Apple to tell stories," he added. "Instead, they should want Apple to do so and then pressure the company, as well as other players in the media space, to be more forthcoming in distribution of information regarding economic profits and deal structures related to filmed entertainment."