For a while now I’ve been wondering why Apple puts up with the intimidation and limitations placed on “premium content” from the Studios and Networks. Instead of being intimidated why not simply replace them by going direct to the producers/talent and (on the other end) the audience?
Even if they did not plan to do it, the threat should cause the existing players to really seriously reconsider their position. Apple currently has about $34 billion in cash, while Google has about $22 billion in cash. Â Keep in mind too, that the goal of all production is to recoup the investment and make a profit. In the long run the original capital is not eroded unless there are a string of commercial failures.
Keep in mind that either party could use a lot of the modern advantages of a greenfield studio so the real cost of production for a completely new player would be significantly less than entrenched workflows and cost structures.
Let’s take just Apple’s little pot of gold. With $34 billion they could produce 566 “average cost” movies. (Average cost is $60 million, up from $35 million a decade ago – and yet the movies aren’t twice as entertaining!) Â The Guardian and other sources suggest there has been a peak of about 600 releases from the studios generally considered to be “Hollywood”, although that number is expected to fall to around 400 for 2009.
Apple alone could finance/produce more movies than the entire current output of “Hollywood”. Think about that for a minute. (Not counting independent features, which cost a lot less and generally don’t recoup their investment.)
If we turn to Television where a hour “scripted drama” (whether dramatic or funny) generally costs around $3 million an episode, although some of the newer shows (Mad Men, Friday Night Lights) are producing for under $2 million an episode. If we stick to that $2 million mark, although I expect a new studio would be more efficient than that, then Apple alone could produce 17,000 one hour TV episodes.
17,000 one hour shows equates to 850 shows running 20 episodes a year. There are not 850 shows being produced in this budget space in the USA. There are no doubt more series overall, but they generally cost a lot less per episode and/or run for shorter seasons.
So, between them Apple and Google could completely refinance the film and television production industries without any input from NBC, ABC, WB, Sony or anyone else.
Remember, MGM as a production studio with a fairly good library of titles, is on the block right now and expected to be worth less than $2 billion. Comcast is buying half of NBC Universal for about $30 billion, but the broadcast network is considered to be a liability in that deal, rather than an asset. (Comcast were expected, at one point, to sell the broadcast network, although that seems to be off the table right now.)
Clearly, either Google or Apple could destroy the existing content production industries without borrowing or risking their business. Just what leverage do the current middlemen really have?
Update: Mike Egan at Cult of Mac makes a similar suggestion in mid 2011.
Comments
10 responses to “What if Apple or Google simply bypassed Networks and Studios?”
Although NBC, ABC, WB and Sony have some of their content playing overseas, none of them have the international distribution network equivalent to Apple’s iTunes Store. That’s an enormous advantage for Apple.
Apple makes its money selling hardware not content. iTunes isn’t a money-maker. So would more content on iTunes sell more Apple hardware that Apple using that cache to create new, cool hardware and make its old hardware obsolete? I don’t think so.
Apple makes money selling hardware and software, and taking a cut on music sales, and a cut on app sales. The days of it being a pure-play hardware company (if it ever was) are long gone.
iTunes is, actually, a money maker. Not as much as even Mac sales (yet) but it is also the biggest music retailer in the US (and probably worldwide).
Philip
Apple gets 30% of all iTunes sales. 30% of 10 Billion Song Downloads, A Couple Billion Application Downloads and Who knows how many Billion Videos is alot of money. So yes ITunes is definitely a money maker. Not to mention that the iTunes delivery system has cemented the iPod int the device that everyone must have for generations to come.
I was thinking last night about Apples share of those 10 billion songs – approx $3 billion gross less say 2% for credit card processing (they aggregate so the average will be ok) and a couple of pennies to deliver each song say another 2%. That’s 4% out of their 30% so 26% gross profit or $2.6 billion. Not as much as Apple make from computers and iPods et al but still not “nothing”. Not a loss as many people seem to think.
Philip
Um no- that would be a horrible idea and a great way to burn through all those cash reserves that Apple won with hard work and innovative design. Studios lose oddles of cash through poorly conceived movies, TV shows and all the marketing that goes with it. Most studios barely eke out a profit as the few winning hits have to subsidize massive amounts of bombs. No studio has perfected the science of making every effort a success. In this sense, other than Apple TV, Apple really has made no mistakes.
Apple’s deal right now with iTunes is as good as it gets- it covers its costs and sells oodles of hardware. Do the right thing for stock holders and stay out of the movie/TV/music business as a label/studio.
Most studios and networks haven’t got the foggiest clue how to make something audiences want to watch! They go with “gut” instinct and usually get it wrong because they’re so far removed from regular viewers. AT least that’s my current opinion. I think it would be hard to do it worse than networks and studios do now.
But really, it’s a very viable “threat” if the networks start to get to hard to deal with.
Philip
Interesting discussion Philip. The threat and how they use it, is what’s interesting
Ian Wilson
Australia
Interesting way to solve the FLASH punch up. That continues to drive me to distraction.
Ian Wilson
OZ
The more I think about FCPX and it’s bad press, I begin to realize how smart a company Apple really is, why all the missing things? simple, want XML “there is an App for that”, sound familiar ?