Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Coming to a multiplex cinema near you, for the last 15 years: Big tech company swoops in to rescue a damsel-in-distress media company. Too bad it's a meet cute that makes little sense.

In a world where the lines are blurring between technology and entertainment programming, it's natural to believe media and tech companies will start to merge. It's all the more natural as newspapers, record labels and TV and movie studios have struggled to land on the right approaches to meet consumer demand in a digital age while making sure their businesses stay financially healthy.

At the same time, tech companies are trying to stand out by giving people what they want, and often that is the movies, TV shows and other news and entertainment offerings made by those dusty old media companies. Looking at the cash hoards of some of the tech giants -- Apple, Google's parent company and Facebook combined have more than $150 billion in cash and liquid securities -- fuels the plot of Big Tech getting together with Big Media.

Fat Wallets
Alphabet, Apple and Facebook together have more than enough cash on hand to cover the combined stock market value of Time Warner and Netflix
Source: Bloomberg
Note: The figures for Apple's cash exclude its holdings of long-term securities.

That's the context behind the latest intriguing report that Eddy Cue, a senior executive responsible for Apple's Internet services and software, broached the idea of his company buying media giant Time Warner in a business meeting late last year, the Financial Times reported on Thursday.

The report said that the talks about an acquisition of Time Warner, with a nearly $60 billion stock market value, didn't get far. But the fact that an Apple executive of Cue's stature even mentioned a Time Warner purchase is intriguing. And it will no doubt get bankers' hearts racing at the prospect of Apple pushing its shopping cart into the media company aisle. 

The idea is hardly new, however. Dating from the early days of Google, people have speculated that tech giants were on the cusp of scooping up media companies. Facebook, Amazon and Apple have joined the perennial list of would-be media acquirers as they have increased their own strategic forays into news and entertainment distribution. Over the years, Apple has been floated as a potential buyer for Netflix, Disney, Sony and other entertainment producers or distributors. 

It's true that owning, say, TV-production titans like Time Warner's Warner Brothers and HBO would help Apple in its long-standing quest to start a television service akin to those offered by cable companies, except over the Internet. But owning a single entertainment company does then make it tougher for Apple to reach deals with any of the others. In buying a media company, Apple also would be increasing its exposure to the old style of TV and movies that it is trying to disrupt. 

It's also not clear why Apple would buy the cow if it's already getting the milk free, or at least for pretty cheap. Apple, Google and Facebook have struck arrangements to license movies, TV shows and music for Web services like iTunes, Apple Music and YouTube. Through programs like Apple News and Facebook Instant Articles, Apple and Facebook already have become powerful gatekeepers for news and entertainment without owning any of the media companies that produce it. 

Trying to buy and then digest a media company also would distract Apple from its much bigger strategic challenges. The company has shifted into slow-to-negative sales growth. It may prove temporary before a jolt from the next blockbuster iPhone or an iCar or something else. Or it could be a sign that the technology winds are blowing away from Apple's core strengths and toward other giants like Google and Facebook, which may eventually give us what we want without ever having to caress an app on Apple's beautiful devices. In either case, buying a media company doesn't solve any of Apple's problems. 

Such an acquisition also would be financially damaging, even if Apple could more than afford the deal. Apple's return on invested capital -- a measure of how efficiently a company is generating cash from equity or debt it invests in its business -- was 28.3 percent in the fiscal year ended in September, according to Bloomberg data. That is among the best rates at big U.S. companies and far above Time Warner's, at less than 10 percent in 2015, or 7.2 percent for Netflix. 

Beauty and the Beasts
Apple has among the best returns on invested capital among big U.S. companies. Most media firms trail far behind.
Source: Bloomberg

Mega tech doing mega mergers with media companies would be a thrilling summer blockbuster for those of us who shed (digital) ink on such matters. But if it were a movie script, it would get two thumbs down. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net