How Apple’s 2015 negotiations for Time Warner bundling deal briefly led to acquisition talks


Apple CEO, Tim Prepare dinner waves as he opens the door of the newly renovated Apple Retailer at Fifth Avenue on September 20, 2019 in New York Metropolis. (Photograph by Kena Betancur / AFP) (Photograph credit score ought to learn KENA BETANCUR/AFP through Getty Photos)

KENA BETANCUR | AFP | Getty Photos

As AT&T and Discovery mentioned placing collectively their content material belongings, they specifically structured a deal to give the combined company flexibility to merge or promote down the highway — maybe to Apple.

Apple is without doubt one of the few corporations that has the stability sheet to purchase WarnerMedia-Discovery, an organization that can seemingly have a market capitalization of greater than $100 billion when it begins buying and selling publicly subsequent yr, assuming regulatory approval.

But it surely’s not clear if Apple has any curiosity in a significant media acquisition. The corporate’s historical past suggests Chief Govt Officer Tim Prepare dinner would draw back from an enormous deal. Apple’s greatest deal ever was a mere $3 billion — for headphones maker Beats Electronics in 2014. To place that in perspective, Apple has a market valuation of greater than $2.1 trillion.

Apple’s rising market energy can be beneath rising scrutiny by regulators and has been the topic of a recently concluded court trial introduced by Fortnite maker Epic. Shelling out $100 billion or extra for an exterior firm could sound alarm bells with politicians that Prepare dinner would relatively not ring.

However, to quote a frequently used investment phrase, previous efficiency is not any assure of future outcomes. Apple has made a comparatively small funding in unique content material, with such sequence as “Ted Lasso” and “The Morning Present,” and Apple TV+ stays a minnow amongst streaming giants Netflix, Amazon Prime Video, Disney, and the newly mixed WarnerMedia-Discovery. If Apple needs to compete, the simplest method ahead is to purchase a media large — and there are already some historic ties between WarnerMedia and Apple.

The Apple-Time Warner talks

In 2015, Prepare dinner, Eddy Cue, Apple’s senior vp of web software program and providers, Jeff Bewkes, then-Time Warner CEO, and former Time Warner government vp Olaf Olafsson met to debate partnership alternatives round Apple completely providing Time Warner’s content material, in keeping with folks aware of the matter. The conferences have been reported by the Financial Times in 2016, however CNBC has discovered of further particulars.

The 4 executives mentioned providing Turner and HBO content material exterior of the cable bundle for about $19 per thirty days, stated an individual aware of the contents of the dialog, who requested to not be named as a result of the discussions have been non-public. Whereas Time Warner was already providing HBO Go individually from the standard pay-TV ecosystem for $15 per thirty days, taking CNN, TBS, TNT and different Turner networks exterior of the broader cable bundle would have been a groundbreaking step.

Even at this time, practically six years later, shoppers cannot purchase a month-to-month subscription to an organization’s linear networks separate from the bigger cable bundle. The broader thought of promoting direct-to-consumer has taken over the media ecosystem, with each main media firm providing a streaming product of its personal.

The executives mentioned the opportunity of Apple being the unique supplier of the supply, giving Apple gadget customers the power to buy the Time Warner bundle by the iTunes retailer.

Over a sequence of weeks, each Apple and Time Warner soured on the thought. Taking Turner’s networks exterior the cable bundle would seemingly have led to a refrain of indignant pay-TV distributors who thought they have been paying for unique content material. And Apple already provided media content material — motion pictures and TV exhibits — from numerous media corporations by the iTunes retailer. Time Warner wished Apple to market the bundle globally, however Apple was hesitant to annoy its different media companions.

Throughout the talks, Bewkes and Prepare dinner broached the topic of Apple buying Time Warner to take care of one of many greatest hurdles of the $19-per-month idea: What if Apple or Time Warner ultimately wished to again out? As soon as the businesses went reside with the supply, they’d want to remain aligned. Strolling away from the deal may very well be disastrous to each corporations’ exterior relationships.

Cue expressed curiosity in a full acquisition, however Prepare dinner in the end wasn’t prepared to tug the set off on what would seemingly would have been near a $100 billion deal, two of the folks stated. Each Bewkes and Prepare dinner hadn’t initially anticipated the talks to result in ideas of an acquisition, stated the folks. Time Warner had successfully fought off a hostile takeover supply from Fox a yr earlier.

A yr later, in late 2016, Bewkes agreed to sell Time Warner to AT&T for greater than $105 billion together with debt.

A spokesman for Apple declined to remark.

One other connection: Richard Plepler

Apple has one other vital tie to WarnerMedia — former HBO chief Richard Plepler.

Plepler left HBO after disagreeing with present AT&T CEO John Stankey in regards to the course of the premium community, as detailed by CNBC last year.

Months later, he signed a five-year take care of Apple TV+ to supply TV sequence, documentaries and have movies completely for the streaming service. The coronavirus pandemic delayed the manufacturing of most of Plepler’s efforts, however a few of his work at Eden Productions work is starting to trickle out, such because the restricted sequence “In With The Satan,” starring Greg Kinnear, Sepideh Moafi, Taron Egerton and Ray Liotta.

If Prepare dinner needs to know inside particulars about HBO, he is obtained somebody on his payroll to ask.

Apple TV+ accounts for simply 3.7% of the corporate’s complete providers income, in keeping with Barclays analyst Tim Lengthy. Free trial intervals finish in July, which is prone to result in elevated churn. Apple TV+ most likely had about 40 million complete subscribers — many on free trials — on the finish of 2020, Barclays estimated.

“Total, Apple TV+ has underperformed versus unique expectations after its launch on the finish of 2019,” Lengthy stated in word to purchasers. “We expect Apple’s finances for producing unique content material is much beneath the quantity Netflix has spent within the final decade. It might take years and nonetheless not transfer the needle.”

If Apple needs to remain within the streaming video world, Prepare dinner could have to buck the corporate’s historical past of avoiding big-money M&A. The WarnerMedia-Discovery deal is not anticipated to shut till mid-2022. That offers Prepare dinner a yr to do some severe eager about his firm’s future.

WATCH: CNBC’s full interview with Discovery CEO David Zaslav and AT&T CEO John Stankey