Apple’s original content launch would create head-to-head competition with Netflix, Hulu

Apple Inc. could be preparing to disrupt yet another industry — Hollywood.

Rumblings that the technology giant is mulling over a push to produce its own TV shows has Tinseltown executives and analysts guessing how big its ambitions might be.

The Cupertino, Calif., company has held early talks with major entertainment industry players in recent weeks who could help it launch original content to stream online. If it pans out, the move could finally put Apple in head-to-head competition with streaming companies such as Netflix, Hulu and Amazon, as well as more entrenched media titans like ABC and HBO.

Stunning photos, celebrity homes: Get the free weekly Hot Property newsletter >>

The discussions are preliminary and Apple hasn’t decided whether to go ahead with the idea, according to a person familiar with the matter who was not authorized to speak publicly. An Apple representative declined to comment.

But the news hardly surprised analysts, who have been expecting Apple to follow Netflix and Amazon into the programming space after those companies’ shows have garnered widespread attention and Emmy nods.

The leading theory is that Apple will use original shows to draw users to its planned streaming television service, which is expected to launch as soon as next year. Although Apple has been keeping quiet about the service, the company has been in talks with major broadcasters ABC, CBS, NBC and Fox to make their programming available on the offering.

But observers say Apple needs the allure of acclaimed, exclusive shows to stand out in an already crowded market of popular streamers.

“It’s all part of a broader strategy that Apple and [Chief Executive] Tim Cook are devising for the next three to five years,� said Daniel Ives, an analyst at FBR Capital Markets. “Hardware will be their bread and butter for decades to come, but they need to build out the next growth drivers and it starts with Apple TV, which could then lead to a streaming TV service.�

The company is expected to unveil an upgraded version of its Apple TV set-top box next week that could one day broadcast its exclusive shows.

Netflix shares fell $9.24, or 8%, to $105.79 on Tuesday amid broader stock market declines, but Wall Street experts cautioned that Apple is already late to the exclusive content realm and may not pose a serious threat to the Los Gatos, Calif., company.

“Just because it’s Apple doesn’t mean it’s going to kill everything in the market,� said Rick Munarriz, a senior analyst and portfolio manager for the Motley Fool. “I don’t think this is going to be this amazing game-changer.�

Apple’s entry into TV or film production would add yet another threat to the traditional cable bundle that has long been the backbone of media conglomerates. Young consumers are turning away from the expensive pay-TV packages in favor of online, on-demand entertainment options — and Apple’s arrival could further accelerate that trend.

The entertainment industry has seen a major change in how consumers are viewing content, and have had to pivot their strategies to accommodate for a growing audience who prefer to stream. But in some ways, the arrival of a deep-pocketed Apple could be a boon for studios and producers pitching shows.

It is unclear how Apple would achieve its Hollywood aspirations. Original content has proved hazardous for some rivals, including Microsoft, which in 2012 established Xbox Entertainment Studios to make series for its gaming console. The studio was shut down last year.

“Sure, [Apple] will produce originals, but are they going to produce one show a year or 50 a year?� wondered Wedbush Securities analyst Michael Pachter. “They’re experimenting with this because of Netflix’s valuation.�

The idea of Apple buying a production company or even a full-fledged studio has long been the subject of speculation. The company could also hire a film and TV business veteran to lead the charge. Some analysts said Apple is most likely to start by acquiring shows that are already in the pipeline, rather than waiting the several years it would take to produce its own series.

Apple has previously shown a willingness to buy its way into businesses that are not part of its core hardware expertise. The company has amassed an estimated $200 billion in cash, so it could easily gobble up entertainment producers if it wanted to.

Last year Apple paid $3 billion for Beats, the headphone and streaming music company founded by Jimmy Iovine and Dr. Dre. It launched its new streaming service Apple Music, based on Beats, two months ago and built its own live radio station with celebrity DJs and hosts broadcasting from New York, Los Angeles and London.

“If Apple gets into the originals game, they will either build it or buy it,� said Peter Csathy, a streaming video expert and chief executive of Manatt Digital Media, a consulting and venture capital firm. “If I were to predict, I think it’s easier to buy your way into that game than to build it yourself.�

Apple may have a long road ahead. Netflix didn’t start adding original shows in earnest until it already had tens of millions of subscribers signed up for its service. But the strategy has ramped up quickly. Shows such as “House of Cards� and “Orange Is the New Black� have helped Netflix grow to 65 million subscribers worldwide. It also has movie deals with big names like Brad Pitt and Adam Sandler.

Apple would need hits to make a real splash. Amazon, among its multiple series, has a critical favorite in “Transparent.� Even Yahoo has gotten into the mix, reviving the cult network comedy “Community.�

To be sure, Apple has always been the subject of rumors, in no small part because of the company’s popularity and secretive nature.

Analysts, though, say a streaming service with original content has a better chance of happening than other rumored products such as an Apple TV set, automobile and a liquid-metal iPhone.

“They understand you have to differentiate yourself one way or another, and original content is the clearest way to do that,� said the Motley Fool’s Munarriz. “No one subscribes to HBO to get the movies that were in theaters nine months ago. They subscribe to get ‘Game of Thrones.’�

Times staff writer David Pierson contributed to this report.

MORE:

Apple disputes report that users are bailing on Apple Music

Why do we idolize Steve Jobs? Alex Gibney explores the ‘Man in the Machine’

Apple earnings and sales beat expectations, but forecast disappoints