In recent years, Apple (NASDAQ: AAPL) has become a prominent buyer in Hollywood. It's now been almost exactly a year since the company hired two TV execs away from Sony in order to lead original video programming. Just a couple months after those hires, we heard that Apple's budget for original content was boosted to a cool $1 billion. There's been a constant string of reports ever since about what types of content Apple is after.
While most of those stories relate to TV shows, the Mac maker is reportedly close to obtaining the rights for an animated movie.
Image source: Apple.
Apple's first film
Bloomberg reports that Apple is closing in on a deal for an animated movie made by Cartoon Saloon. The Ireland-based animation studio has been nominated for an Oscar at least three times, and also has an original children's show on Netflix (NASDAQ: NFLX). The deal has not yet been finalized, and the movie has not been made yet. Its potential release would still be over a year away. It sounds as if Apple would like the movie to qualify for an Oscar, which would require the company to release it in theaters.
Apple may be interested in an animated movie as a way to reinforce its image as a family-friendly company. Late co-founder Steve Jobs helped create Pixar by acquiring it from Lucasfilm in the '80s, which paved the way for the first computer animated 3D feature film, Toy Story. This movie would represent Apple's first full-length movie as part of its growing portfolio of original content.
Apple's strategy is still murky, but it doesn't have to be
Thus far, Apple has mostly released its original content as part of Apple Music, the company's music-streaming service. Some shows, like Planet of the Apps, have been unqualified flops, but that's the name of the game when it comes to the hit-or-miss nature of Hollywood. Moreover, the notion that consumers would sign up for Apple Music for original video content has never been compelling, yet the company has not been dissuaded from pursuing original content. Apple's distribution plans remain murky, but its TV app could be a candidate.
Image source: Apple.
The long-term answer is pretty straightforward: create an over-the-top (OTT) video streaming service to compete with Netflix. Apple's market share of video content sales and downloads has been declining, although the company said last year that in absolute terms video purchases and rentals were at record highs.
While no one would pay $10 per month just to access the very small library that Apple is building, the company could obtain rights to licensed content to fill the void as it ramps its original content, much like how Netflix started off before aggressively shifting its focus to original content. Building such a service from scratch would take many years, but Apple's deep pockets allow it to play the long game.
More broadly, Apple is building all sorts of subscription-based offerings as it looks to grow its services business to $50 billion by 2020, including a premium news subscription service that's reportedly in the works. A video-streaming service seems like a no-brainer.
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Evan Niu, CFA owns shares of Apple and Netflix. The Motley Fool owns shares of and recommends Apple and Netflix. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.