“SHOULD EDDY tag">CUE TAKE APPLE TO HOLLYWOOD?” STUDENT CASE DISCUSSION

Eddy Cue, just back from a high-profile trip to the had not been particularly pleased with the candor 2018 South by Southwest conference in Austin, expressed while in Austin. Cook had asked Cue to Texas, was reflecting on a press conference he reconsider how Apple could strengthen its position had given while there. During the presser, he had in the content creation and distribution battle. They been asked if Apple had new plans to strengthen were scheduled to meet in 24 hours, and Cue did its position in the delivery and creation of original not have a clear strategy in mind. content. His blunt answer has been picked up by In media streaming, Apple had gone from first place many media outlets. in streaming device sales in 2015 to second place

in 2018. Also, Apple’s position appeared weak in DISCUSSION CASE STUDENT terms of programming expenses; it ranked 11th with about $1B per year, with most of it for content acquired (but not created) by Apple. Just like the press had done in Austin, Cook had asked whether a bold move was needed. Cook was worried that Apple would fall behind Netflix and Amazon. What v should be done to ensure that content creation and content delivery could be better leveraged with Apple’s commercial successes in devices? In recent strategy meetings, Cook had said that although iPhones were the backbone of Apple’s innovations, the slowdown in iPhone sales was a concern. Although Apple had introduced successful products, including the Apple Watch and AirPods, the company’s attempt to compete with Amazon’s Alexa by introducing the HomePod had met only limited success. Cook had wondered whether it was too late for it to catch up in the content race. He had even asked: “Instead of fighting Amazon, Netflix, Roku, and Google, what about acquiring Netflix?” Netflix was founded in 1997 by Reed Hastings and

“We don’t know anything about making television. . . . So what skills does Apple bring to that? And the viewpoint is: very little. There’s other things we bring. We know how to create apps, we know how to do distribution, we know how to market. But we don’t really know how to create shows.” (NYT, 03/25/18)

As Apple’s Senior VP of Internet Software and Services, Cue oversaw multiple parts of Apple’s portfolio, including iTunes Store, Apple Music, Apple Pay, Siri, and the team in charge of original content programming. His boss, CEO Tim Cook, Marc Randolph as an online platform for renting more fundamental level, did Apple belong in the TV DVDs. In just a few years, this start-up had evolved and studio business in the first place? from a small mail-order DVD rental service to Cue knew that Cook wanted a solid analysis and a multinational media streaming powerhouse, a concrete plan, so he canceled the rest of his and in 2018 into one of the most successful meetings for the day. He stood up from his desk content creators in the world. Over the past 22 and went to his office whiteboard. It was going to years, Netflix had disrupted many entrenched be a long day. competitors and had led the “cord cutting revolution.” First, it had driven Blockbuster’s brick- and-mortar video rental business out of business. Then, as a streaming company, Netflix had taken on cable, satellite, and on-demand providers. Now, as a content creator, Netflix was disrupting the traditional TV and movie studios. At the end of 2018, Netflix had almost 150 million subscribers DISCUSSION CASE STUDENT globally (90 million outside the US). Its users watched close to two billion hours of content per week and paid about $.20 per hour watched. Across age groups, Netflix had become the preferred viewing platform in the US. On the content side, Netflix was working toward a 50 percent original content business model. So far, its ability to produce blockbuster shows was undeniable, and recent data confirmed that its own shows were among the most popular on the platform. Cue was preparing for his meeting with Cook. Apple was in good financial shape; it had started 2018 with $266B in revenue and $60B in net income and could access $66B in cash. However, Cue was torn. He knew that Apple had the technological means to integrate Netflix into its ecosystem of products and services; however, Netflix was worth at least $150B. Was it worth it? If Apple did not buy Netflix, would Amazon pursue this acquisition instead? Or could Netflix follow Amazon’s strategy and start producing hardware to stream its own content? On a personal level, would buying Netflix be the definite admission that his Apple content team had failed to produce meaningful original programming? Finally, on a