Apple will need to acquire content providers in 2019 or face the possibility of losing steam in its Services division, according to one analyst.
In a note to investors on Monday, Wedbush analyst Daniel Ives said that “the clock has struck midnight for Apple” and its Services division. He believes the only way for Apple to grow the Services division quickly enough and keep pace with competitors, like Disney, Netflix, and Amazon, is through an aggressive content-acquisition strategy.
“Building content organically is a slow and arduous path, which highlights the clear need for Apple to do larger, strategic M&A around content over the coming year to ‘double down’ and drive the services flywheel,” he told investors in the note.
Services has become a critically important business to Apple in light of some continuing softness in its iPhone division and in China. Apple’s Services business—which includes App Store revenue, Apple Music subscriptions, and more—continues to grow at a rapid clip and prove critical to Apple’s bottom line.
There have been reports for more than a year now that Apple is working on a subscription TV service that would stream content to its many devices. Apple (aapl) has also been acquiring rights to original programming and purchased the rights to popular shows, like Carpool Karaoke.
Still, Apple’s range of content is far behind what you’d find from Netflix and others. And although the company has committed to getting into the content business, it’s been doing so slowly.
For his part, Ives believes there are several potential acquisition targets for Apple in the content business. In a note, he said that Apple acquiring Sony Pictures, Lionsgate, and A24—all film studios—would seem most likely. He suggested that there’s a “medium probability” of Apple being able to snap up Viacom/CBS or MGM Studios and suggested a Netflix or Disney acquisition would be “low probability.”
Apple, which is flush with cash of more than $130 billion in the bank, has been loath to make big acquisitions. It’s a stance that Ives said should change.
“Now is the time for Apple to rip off the band-aid and finally do significant content M&A with the landscape ripe,” Ives said. “Otherwise it will be a major strategic mistake in our opinion that will haunt the company for years to come.”