Media Wonk

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Who should Apple buy? Media Wonk's picks. - October 28, 2008

Technically, that should probably be, "Whom" should Apple buy, but it looked stupid in a headline. At any rate, speculating about what Apple will/should do with the $25 billion cash hoard that seems to be burning a hole in Steve Jobs' pocket, has become quite the parlor game in tech blog circles. Wired's Epicenter blog took a poll of readers and come up with: NVIDIA, Nintendo, Sun Microsystems, Electronic Arts and Adobe.

ZDNet offers: TiVo, Pandora, Last.fm and Hulu. Other names to come up include Yahoo, AMD, Netflix (?), Blockbuster (?!), SanDisk, RIM, Circuit City (??!!) and Vudu.

Some of these, like Blockbuster, Netflix and Circuit City, are just crazy. I can't see Apple touching anything that involves physical media at this point and there's nothing Netflix or Blockbuster can do electronically that Apple can't do itself and probably better. Others intriguing but not feasible financially, like Nintendo, which has a market cap of $44 billion.

Still others, like NVIDIA and AMD, are probably more valuable to Apple in the wild than in captivity. Apple might save a few bucks on video and graphics cards by buying NVIDIA but you'd rather have them focus on innovating than on cost and turning them into captive suppliers is no way to spur innovation.

So who should Apple buy (assuming, of course, that Jobs wasn't just playing head games with people about a possible acquisition)?

First, a caveat: It's possible there are investments or acquisitions on the OS or business-application side that would make the most sense for Apple but which are beyond my purview or expertise. So what follows is based on the (possibly false) premise that Apple would focus any big new investment on the digital living room, portable-device or content-delivery parts of its business.

With that in mind, here are Media Wonk's top candidates:

Move Networks (Privately funded):
Apple needs to solidify its strategic position in the mechanics of content delivery. This week saw Apple's iTunes CDN partner, Akamai, announced plans to deploy Microsoft's Smooth Streaming enhancement to its Silverlight platform to improve streaming of HD video using adaptive bit-rate technology. This week also saw Netflix adopt Silverlight to reach Mac users for the first time with its movie streaming service, in effect colonizing the Mac through the back door using Microsoft technology. On one level, that shouldn't matter to Apple; Silverlight works across browsers so both the Akamai and Netflix announcements will benefit Mac users along with everyone else. But it points up the growing importance of the quality of streamed video to both content monetization and the consumer experience.

Again, on one level, it's not a big deal for Apple. Streaming quality is relatively less important in a download context, such as iTunes, and content delivery is not a core business for Apple. Its focus is the device, and the content to play on it, not how it gets there. But if Apple TV is ever to become more than a "hobby," as Jobs puts it, it will need to support live, high-quality streaming. And even downloads can be affected by fluctuations in last-mile through-put and other delivery glitches.

The beauty of Move Networks, from Apple's point of view, is that it's a closed system, relying on a proprietary encoding process and player. If Apple wants to establish a high-quality, end-to-end streaming platform to match the walled-garden download experience in iTunes, Move is the way to go.

The downside: Microsoft is a major investor in Move Networks, which might make it unwilling to sell.

BitTorrent (Privately funded):
Another approach to skinning the same cat. It's already used by major studios and other large content providers as a highly cost-effective and efficient means for delivering both downloads and streamed video. In Apple's hands BitTorrent could shed the stigma of its shaggy-dog origins and gain a respect commensurate with its capabilities. More important, it could give Apple a hip and groovy answer to the quality streaming question should it decide not to go the way of Silverlight or big-iron CDNs.

Downside: There are an awful lot of BitTorrent clients out there that would not be under Apple's control.

TiVo (Market cap: $609 million)
People love their TiVos the way they love their Macs. There's natural karma there. Marrying Apple TV to TiVo now would spare Apple the time and expense of adding TiVo-like functionality to Apple TV, as it inevitably would have to do for Apple TV to become more than a hobby. It would also give Apple an immediate footprint in the digital living room to match Microsoft's Xbox and Sony's PlayStation consoles without having to spend a lot of money establishing its own. TiVo also has some nice IP.

The downside: Competing with cable MSOs and satellite services.

SanDisk (Market cap $1.8 billion)
SanDisk would probably welcome a white knight to rescue it from Samsung's clutches and it might be worth it to Apple if only for forestall further consolidation of the flash memory business. Sure, flash is cheap and getting cheaper but SanDisk owns a lot of the important IP and you wouldn't necessarily want that falling into the hands of another device maker. Plus, flash technology is only going to grow in importance to content owners as they look for secure ways to let consumers move content around among devices. Right now SanDisk's market cap is only $450 million more than its enterprise value, so it's cheap.

The downside: Samsung is probably still interested and Apple could find itself in a bidding war.


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