Apple (NASDAQ:AAPL) stock opened for trade this week with a market cap of $1.86 billion.
Put that in perspective. It’s nine times Walt Disney’s (NYSE:DIS) $219 billion, Comcast’s (NASDAQ:CMCSA) $196 billion, and almost 10 times AT&T’s (NYSE:T) $192 billion.
If the problem for Apple TV, or its Apple TV+ streaming project, is a shortage of content, it’s one the company can buy its way out of. Even Netflix (NASDAQ:NFLX), with a market cap of $210 billion, isn’t a serious threat.
When looking to who controls the new world of streaming, Apple’s real challengers are Alphabet’s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube and Amazon (NASDAQ:AMZN) Amazon Prime. Alphabet, after all, is worth $1.1 billion, Amazon $1.5 billion.
But money is just part of the story.
Technology First
What matters in streaming is technology. Apple, Amazon, and Alphabet all sell streaming sticks, which turn two-way Internet-fed content into one-way fare for home television. Their only competitor is Roku (NASDAQ:ROKU), which with its market cap of $25 billion holds the position of Switzerland among the great powers.
Apple has mastered the technology. Its remote is top-notch. Its app is also winning praise. Compare the parts to what you have and there’s no comparison. Whether the Apple TV box itself will survive isn’t important. Apple has the software to win.
AAPL stock also has the money. While stars and shows may be worth millions, Apple has trillions. Apple TV+ was launched with a $6 billion budget. Apple can outbid anyone for talent. It can also be patient. Apple TV+ has a knock-down price of $5 per month, which beats almost every streamer out there. You can bundle it with music and gaming for $15 per month.
The Content Tax Is Control
AAPL stock can wait for the market to fall into its lap because it charges 30% of everyone else’s gross for access to its market.
The app store charge amounts to a publisher’s share of every game, song or TV show that wants to reach Apple’s market. While many have complained only Epic Games, backed by China’s Tencent Holdings (OTCMKTS:TCEHY), has been willing to go to court over it.
Initial court rulings favor Apple. It can keep Epic’s Fortnite out of the app store but can’t retaliate against other games using Fortnite’s Unreal Engine. This has turned down the heat on the issue, since all game platforms like those of Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) take a walled garden approach.
If the case goes to trial, next July, the result could shake up the whole industry. This is not just an Apple issue. The app store model has become an industry standard favoring technology over content. Like Apple, Google also charges 30% on Android apps.
But it’s always hard to predict what a jury may think, or what deference appeals courts might give a jury’s decisions. If this case looks to be going against Apple, the stock will be hit hard.
More important, if trustbusters want to go after big cloud companies, they should go after their app stores.
The Bottom Line for APPL Stock
He who has the gold makes the rules.
Besides $90 billion in cash Apple has control over the content market through the app store.
The question for investors is how much does this mean? In its September quarter report, Apple was getting almost 20% of its revenue from services. It now has 10 cloud data centers with more on the way.
Apple’s content gold rush has just started, assuming it can keep the app store model proprietary.
At the time of publication, Dana Blankenhorn had long positions in AAPL, MSFT and AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
