I thought I was going crazy when shares of Sony (NYSE: SNE) closed higher in Japan yesterday, after rumors surfaced of an Apple (Nasdaq: AAPL) takeover.
Every analyst worth a lick shot the ridiculous chatter down. Sony? Come on! The company that only this week ceased production of the cassette-based Walkman in Japan?
However, just as quickly as the Sony story died, analysts on CNBC began pondering the notion of Apple buying Netflix (Nasdaq: NFLX). Yes, Netflix. This one makes more sense, but do you see what's going on out there? Everybody's becoming Apple's personal shopper.
It's Apple's fault of course.
"We'd like to continue to keep our powder dry because we do feel that there are one or more strategic opportunities in the future," Steve Jobs said when asked last week about the $51 billion resting on its balance sheet.
In other words, Apple is eyeing a meaty acquisition or two.
Let's go over a few of the names being tossed out in recent days, and how likely they are to be Cupertino'd in the future.
Netflix
Apple owns the digital music market, but it's a different story when it comes to video. It's doing a reasonable job of trying to sell and rent movies and television shows on a piecemeal basis, but Netflix's subscription-based streaming buffet is the real dynamo here.
A recent Sandvine report says that Netflix streams account for 20% of this country's downstream bandwidth during peak primetime hours.
Why would Apple buy Netflix when it can launch its own subscription service? Does Apple want to get into the physical distribution of DVDs -- an ironic move since MacBook Air laptops don't even come with optical disc drives?
Well, let's address Apple rolling out its own Netflixesque streaming service. Apple certainly has the money and connections to broker the content-licensing deals to get off the ground, but why reinvent the wheel? Netflix has 16.9 million subscribers, and more than 11 million of them are taking advantage of Netflix's unlimited streams through their computers and Web-tethered home theater devices. If Apple buys Netflix, it becomes the undisputed champ in this space. If not, it will take years for it to pry Netflix's 16.9 million -- and growing -- couch potatoes away, and that seems unlikely given the market's love for Netflix.
As for Netflix's network of regional distribution centers in the United States, even Netflix admits that it's now a streaming company with a DVD component. Apple already has a physical presence around the country with its stores, so it's not as if there are any state sales tax implications behind Netflix's lean and cost-effective distribution centers. If anything, Apple can relish the opportunity to promote its wares through ads on the Netflix mailers.
Akamai (Nasdaq: AKAM)
The leading content-delivery network is another name that has come up as an acquisition target for Apple.
I'm not feeling this one. Akamai services Apple as well as many of its rivals by speeding up the delivery of website pages, media files, and software updates. Under Apple's wing, Akamai would likely lose a lot of that business to smaller rivals.
This is also a cutthroat business, as anyone with excess server capacity can try to jump in with subsidized pricing to land new accounts. Akamai's the class act in this niche, but it's not an imperative purchase if Apple wants to build out a server farm as many tech giants have been doing lately.
Sirius XM Radio (Nasdaq: SIRI)
I'm a fan of Sirius XM, but this one is just not happening.
Apple acquired Siri -- a small maker of voice-activated mobile apps -- earlier this year, and this may have created confusion given Sirius XM's ticker symbol.
If you think Apple will run into resistance buying Netflix's fleet of distribution centers, imagine the cumbersome purchase and upkeep of satellites for a venture locked into North America. There is value in Sirius XM's content and streaming acumen, but Apple doesn't need to shell out 11 figures to nab that. It bought Lala.com -- for a song -- less than a year ago.
Buying Sirius XM would be bad for both Apple and Sirius XM. Apple shareholders would take a hit, given the dilutive impact of Sirius XM's slower growth and weaker margins. Sirius XM, on the other hand, would lose the value of its billions in tax loss carryforwards. Sirius XM is the one that needs to go buying profitable companies to cash in on that meaty tax break -- and not the other way around.
Disney (NYSE: DIS)
Steve Jobs is Disney's largest shareholder after the sale of Pixar, but there's little reason beyond that to see Apple and Disney joining forces.
Apple can't play favorites when it comes to media moguls. It has no business sniffing around Sony because of its film and music properties, and the same applies to Disney's movie, music, and cable juggernauts.
If Apple wants to man the marketplace of choice for digital music and video, it can't be seen as a competitor to rival media giants.
Sure, we can have a lot of fun refashioning Disneyland in Apple's image. The Matterhorn coaster can become Mac-erhorn. We can hop on the "It's an iPod nano World" boat ride. At the end of the day, Disney and Apple have a good working relationship. There's no reason to put a ring on it -- especially when that ring may be seen by others as an anchor.
Facebook
This one makes a lot of sense. Apple has never been much of a force in cyberspace, and it only makes sense to grow its portfolio with pages to monetize as it ramps up its mobile advertising platform.
Unfortunately, Facebook doesn't have much of a reason to cash out. It's growing. It's a darling. It should go public in a year or two, as long as its user count doesn't peak.
Apple may find it cheaper to buy Yahoo! (Nasdaq: YHOO), a move that would be poorly received initially by Apple shareowners but would play into Apple's display advertising sweet spot while giving it one of the Internet's giants of page views.
In the end, there probably won't be any substantial buyout that would make Apple shareholders happy. However, now that it's teasing analysts with a strategic play or two up its sleeve, the clock is ticking.
Who should Apple buy next? Share your thoughts in the comment box below.
