Apple and Disney have been directly and indirectly linked for the past two decades. Steve Jobs famously sold Pixar to Disney in 2006. Disney was also one of the first major studios to put its movie and tv show library on the iTunes Store, in 2005. Jobs served on Disney’s board from 2006 to his passing, and Bob Iger (Disney’s former and now present CEO), on Apple’s until 2019, when the launch of the competing Disney+ and Apple TV+ presented the potential for conflict of interest.
The idea of Apple acquiring or merging with Disney is nothing new. In fact, it’s something that Iger himself has admitted to thinking about:
"It's impossible not to have the conversation with him in my head that I wish I could be having in real life. More than that, I believe that if Steve were still alive, we would have combined our companies, or at least discussed the possibility very seriously."
Let’s dive into the incredible synergies of a combined company, and why the timing seems right now.
Content is King
Props to Apple for building a formidable content library from scratch; with Ted Lasso they possess the past two Emmys for Best TV Comedy, and with Coda, the last Best Picture winner. Regardless, this pales in comparison to the content vault of the House of Mouse: Marvel, Pixar, Star Wars… shall I go on?
Disney now has more combined subscribers, 221 million, for its swath of streaming services (Disney+, Hulu, ESPN+, HotStar) than Netflix does. At the same time, I’m surprised that Disney has not tried to vertically integrate into streaming hardware. I think Disney acquiring Roku makes too much sense and would immediately bolster its streaming usage by becoming a default option on Roku boxes. On the inverse, Apple’s device reach would do the same for Disney. As Oprah famously said, “They’re in a billion pockets, y’all!”
Disney+ as a part of Apple could continue to do what it does best - develop amazing content and programs - without the stress of immediate profitability (Disney+ reportedly loss $1.5 billion in the last quarter alone). Apple could foot the bill, and focus on embedding Disney content and Disney+ into its Apple One bundles and its shift towards becoming a recurring revenue company.
Content from ABC and National Geographic would also bolster Apple’s so far lacklustre entires into news and broadcast programs, and potentially offer new video features in the Apple News app.
ESPN & Sports
TV and movie content might be the hot area for investment, but live sports are still what makes the real money and gets the eyeballs.
ESPN has long been “the” channel for sports, but this is no longer translating to economic success for Disney. More people are canceling cable subscriptions causing lower carriage fees and advertising revenue for companies like Disney, that program cable networks. This is in addition to rising costs for sports TV rights because of the entry of new bidders like Apple and Amazon.
Apple has already entered the sports content business with a $2.5 billion, 10-year agreement to be the exclusive platform for Major League Soccer. This is in addition to its foray into baseball with Friday Night Baseball, and its rumoured front runner status to land the jewel of the sports world: NFL Sunday Ticket. I think Apple would love to put its future sports content behind a trusted brand in ESPN, accruing its sports rights and library in the process.
Gaming and Apple’s Metaverse
Disney shut down its gaming studio in 2016, and currently only licences out its characters to other studios. I think this is a similar missed opportunity to the early 2000s Marvel when it licensed out its characters to film studios, rather than making them. Apple on the other hand, has its own gaming service - Apple Arcade. Arcade isn’t a blowing anyone away, but it is yet another offering in the Apple One bundle that could benefit from being the home to Disney characters. There’s also a growing trend in the video game industry of console companies like Microsoft and Sony, building gaming catalogs internally, or purchasing large studios.
This also leads to the the worst kept secret in Silicon Valley; Apple is working on VR and AR devices. Meta’s foray into the “metaverse” shows the struggles when you don’t have an ecosystem of content, games, and applications that people are interested in. To date, Meta’s tentpole Horizon Worlds app is a major flop. Any new interface needs a “killer” app; I still don’t know what is for AR/VR, but I do know an immersive ecosystem of Apple apps and Disney content would make Meta look boring.
India
Another interesting tidbit is Disney’s dominance in India. Its subscription service, Hotstar, has 45 million subscribers; putting it ahead of Netflix in the country. Importantly, Hotstar owns the streaming rights to the Indian Premier League for cricket and other major Hindi shows.
Apple currently commands a tiny market share in the country, but has growing ambitions:
It launched its online store there in 2020 and reportedly has plans to open its first retail location in the country.
It also sees India as a way to shift its manufacturing reliance away from China, and started assembly of iPhone 14s there this year.
While the price of Apple’s handsets are an impediment for mass adoption in India, the combination of its entry level iPhone SE and the content library of Hotstar would put it in a better position to at least compete with low-priced options from Xiaomi or Oppo that dominate the 1.4 billion person Indian market.
Why now?
The synergies are clearly present, the question is why now?
Let’s start with Apple. Apple has been very hesitant to complete large acquisitions in the past, whilst its Big Tech companions have gobbled up companies for billions of dollars. To date, its largest acquisition is Beats for $3B. However, in the Apple Q2 earnings call, Tim Cook had this to say:
“We are always looking at companies to buy. We acquire a lot of smaller companies, and we’ll continue to do that for IP and to incorporate talent. We don’t discount something larger if the opportunity presents itself.”
The specific reference to IP sounds a lot like Disney to me… Disney wouldn’t come cheap. Its current market cap is ~$176B and a purchase would likely require a premium, taking it to well over $200B. Even with borrowing becoming more expensive with rising interest rates, Apple is sitting on a cash stockpile of ~$50B and could complete the remainder of the acquisition with stock.
Now for Disney. Bob Iger is returning to the company after a boardroom ouster of his self-appointed successor Bob Chapek, that could have been a scene straight out of season 4 of Succession. He returns to a very different Disney than the one he left:
Morale is at an all-time low after its stock has tumbled from $197 to $98 in the past 20 months.
Chapek decimated and insulted the Pixar and animation creators that Iger worked so hard to cultivate in his final years.
Disney is loaded with debt (in part from Iger’s 21st Century Fox purchase) so he’s likely unable to pursue any further acquisitions in which he has become famous for.
Disney’s parks remain a revenue bright spot, but have attracted negative PR due to recent price and reservation changes and would likely be negatively affected by a looming recession.
I’d never count out Iger, but I think that the ultimate deal maker would view selling to Apple as his pinnacle deal.
I think there is also an emotional and cultural component. Both Apple and Disney are juggernauts in their respective fields but strongly believe that value starts in creativity and in the blending of technology and art; their cultures are in sync. Further, there are few non-founder executives I can think of that are so intrinsically linked to a company than Iger is to Disney. There is a part of me that thinks he’d welcome being the “last” CEO of Disney, and entrusting the future of it to Tim Cook and co.; the same group that his friend Steve entrusted the future of Apple to.
Let’s Wrap
Apple boasts the single greatest product in the consumer world; the iPhone. Disney owns the greatest collection of consumer assets. A combined Apple-Disney would possess ~1/5th of the earth’s population as customers. This is likely all speculation, and I doubt that the current hawkish regulatory authorities would allow any such acquisition to occur… but an Apple fan boy can dream…