Bold Moves Call for Bold Predictions - Apple's Next Move

With Steve Jobs' announcement last week that Apple would use its $40B stockpile of cash not for stock buybacks or dividends, but instead for "big, bold" moves, it's time for the Jesus Tablet to make a big, bold prediction about what it might do with that cash.

To set the table, here is what Steve Jobs said:

"When we think about big, bold things, we know that if we needed to acquire something, a piece of the puzzle, to make something big and bold a reality, we could write a check for it," he said.

Conventional wisdom continued to question whether Apple would truly make a major acquisition with this cash. Again, from Reuters:

Hudson Square analyst Daniel Ernst said he thought Jobs' comments did not signal a change in strategy, and added Apple Chief Operating Officer Tim Cook had said earlier in the week that the company had yet to see a large target that made strategic or financial sense. "I don't think they'd do a big acquisition. There simply isn't a business out there that would be a cultural fit with them. They're not like other companies," Ernst said.

He said Jobs was likely trying to explain how valuable Apple's cash was strategically, as it provides the company with the security to take chances with its products.  Apple's more recent acquisitions include: semiconductor firm PA Semi, mobile ad company Quattro Wireless, and music subscription service Lala. All were relatively small deals

"Large M&A doesn't work with their business model," said Broadpoint Amtech analyst Brian Marshall.

Ok, so even when Steve Jobs tells people he wants to keep the powder dry so he can make a big move "one of these days", the experts don't believe him.  I'm not an expert, I'm not an Apple analyst.  I don't know anyone at Apple and have no inside information.  I don't even own a Mac.  I'm just an observer, usually fascinated and always impressed by Apple the company, and I'll take Steve Jobs at his word.  I don't think he would tell investors to essentially forget about taking the gain on a buyback or dividend, hint that a big move could happen, and not be considering some significant acquisition.

So here's my prediction.  It's an acquisition that was discussed years ago, and may actually have been close to happening, but it's something no one is talking about anymore - until now.  Apple will acquire Tivo.  You heard it here first.  Mark it down.

And yes, with a market cap approaching $2B as of this writing, acquiring Tivo would be a big, bold move.

For years, Steve Jobs has been calling Apple TV a "hobby".  As recently as last week, COO Tim Cook called Apple TV a hobby.   The digital TV / set top box market cannot remain a hobby to one the most powerful consumer electronics AND content distribution companies on the planet.  My take is that they have been taking a wait and see approach to see more clearly how the market is evolving.  And now the time is right to make their move, as they did with MP3 players and smart phones.  The digital recording landscape is becoming clearer and the time is right.

Here are several reasons it could happen in 2010 (with a new Apple Tivo device in 2011):

1)  The patents.  With their recent patent win, anyone that wants a Tivo-like device (read every household in America) that can record (while watching another show) and rewind live TV will have to go through Tivo to get it.  I'm not a patent expert but Dish Network has spent a lot of time and money trying to build work-arounds that save the device and don't infringe.  The courts keep telling them that they are still infringing and the penalties grow and grow.  It appears that Tivo has a strong hold on key patents in this area.  As Tivo Founder James Barton says, while companies may be able to engineer around the patents it won't be easy, with its 61 claims, the patent is "broad enough for people in the space, or those looking to enter, will have to look at it and talk to us."

2)  The culture.  Analyst Daniel Ernst says in the quote pulled above that "There simply isn't a business out there that would be a cultural fit with them. They're not like other companies".  While I think I understand what he means, I would turn this around.  If there is one company out there in the consumer electronics space that has truly created a cult following of early adopters, created buzz and delivered truly innovative and game-changing technology, it's Tivo.  While its following has dwindled, the aura of Tivo is still that of innovation and independence.  They were in the magic business, just like Apple.  The Tivo brand, for all its inability to break through as a business, is still incredibly valuable.  I can't speak to its internal corporate culture, but the culture surrounding people who embraced Tivo seems awfully similar to the post-Pod Apple community.  The people I know that jumped on Tivo early were fanatical about it and still have it today.  They are the same people that have iPhones and will get sore thumbs refreshing the Apple site March 12 to be the first ones to pre-order an iPad.  I think Tivo fits Apple, uniquely.


3)  It's the last piece of the puzzle.  Where do you go after music, computers and telecommunications?  If you are thinking bold and big, you must go TV (as I've pointed out in previous posts).  And Steve Jobs said (above) that "if we needed to acquire something, a piece of the puzzle, to make something big and bold a reality, we could write a check for it".  TV is the biggest missing piece of the Apple puzzle.  So if you want to make a big move in TV, your options are limited.  Even with Tivo Premier announced recently, which blurs the line between TV and Internet, Tivo just hasn't figured out how to make the business work.  They've shown as good as their technology is, they aren't pulling people away from cable and satellite.  They may be resigned to being an extremely profitable licensing entity, cashing in on the patents.  They are down, but with the patents and the brand name, they are not out.  The one company that could make a modified Tivo business model work is Apple.  People trust Apple.  People don't like the cable company, but they are easy and they already get their Internet from them.  It will take a company with the brand equity of Apple to get people comfortable turning their living room over to someone else.  Tivo can't.  Apple can.  People will turn themselves over to Apple and it will work in a big and bold way.


4)  Content.  Apple has proven to the be most ingenious deal maker when it comes to licensing content.  (Note Bill Gates now infamous email, "This time somehow he [Jobs] has applied his talents in getting a better Licensing deal than anyone else has gotten for music."   They can bring to bear those skills and relationships to morph the Tivo box into something that truly threatens the cable providers and will break the cable business model surrounding packaged content.  

5)  Apps.  Of course, by the time the Apple Tivo becomes a reality, the App economy will be in fever pitch and hundreds of thousands of apps will reveal the ultimate power of TV engagement.  Apps will continue to dominate the innovation in software for the next decade and apps for the web-TV (Apple Tivo integration of web and TV) may be its pinnacle.

6) It will be so easy to change their branding from Apple TV to Apple Tivo!   (And yes, the 2011 Apple Tivo is where the i- naming stops!)


Disclaimer.  The author has owned a small amount of Tivo stock for years.  He's downright giddy this week and may be getting carried away.