Is Original Content a Distraction?
An excellent essay by Pantho Investments over at Seeking Alpha tackles head-on the issue of whether or not Apple (AAPL) is going through “diworseification”. The recent news that Apple is investing $1 billion dollars to create original content kicked off the discussion. Diworseification is a concept that Peter Lynch popularized in his 1989 book, One Up On Wall Street:
Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworseifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximized.
Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original purchase price). —Peter Lynch, One Up On Wall Street, p. 148
It’s not uncommon for CEOs to be drawn to new markets or big flashy acquisitions that have nothing to do with their core business. But Apple getting into original content doesn’t fit that mold. For starters, Apple has maintained all along that their aim is for their devices to disappear so that all you see is the content that you’re after. Original content and iPhones go together like cars and roads or lamps and bulbs.
My problem with Apple’s billion-dollar investment is more along the lines of questioning whether it’s the most efficient way of getting quality content.
Netflix is churning out hit after hit in what has become a self-sustaining hit machine. The more eyeballs that they attract, the more that Netflix is able to predict what will become popular. Having good natural instincts on what your audience wants is invaluable. But combine that with analytical data that few of your competitors have, and you have a real advantage over the other geniuses in the industry.
The Netflix data warehouse and system is what I would have liked Apple to purchase. Not so much just the hit shows. Those shows are important, but the data and system are much more valuable.
Apple deciding to invest a billion dollars into original content is a big gamble. I’m not sure they truly respect how hard it is to create hit shows. Are they prepared to churn out ten shows to get 1 or 2 good ones? Nor do I think they fully respect how far behind they are.
This is why companies purchase other corporations. To gain a specific expertise that they don’t possess or to mitigate a lead that your competitors have. Of course, most management teams would rather build something from scratch. It’s cheaper and easier. But sometimes you don’t get that option.
An acquisition of an original content creator would help fulfill Apple’s purpose, not derail it.
Now available in iBooks —> The Tesla Bubble
Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original purchase price). —Peter Lynch, One Up On Wall Street, p. 148
It’s not uncommon for CEOs to be drawn to new markets or big flashy acquisitions that have nothing to do with their core business. But Apple getting into original content doesn’t fit that mold. For starters, Apple has maintained all along that their aim is for their devices to disappear so that all you see is the content that you’re after. Original content and iPhones go together like cars and roads or lamps and bulbs.
My problem with Apple’s billion-dollar investment is more along the lines of questioning whether it’s the most efficient way of getting quality content.
Netflix is churning out hit after hit in what has become a self-sustaining hit machine. The more eyeballs that they attract, the more that Netflix is able to predict what will become popular. Having good natural instincts on what your audience wants is invaluable. But combine that with analytical data that few of your competitors have, and you have a real advantage over the other geniuses in the industry.
The Netflix data warehouse and system is what I would have liked Apple to purchase. Not so much just the hit shows. Those shows are important, but the data and system are much more valuable.
Apple deciding to invest a billion dollars into original content is a big gamble. I’m not sure they truly respect how hard it is to create hit shows. Are they prepared to churn out ten shows to get 1 or 2 good ones? Nor do I think they fully respect how far behind they are.
This is why companies purchase other corporations. To gain a specific expertise that they don’t possess or to mitigate a lead that your competitors have. Of course, most management teams would rather build something from scratch. It’s cheaper and easier. But sometimes you don’t get that option.
An acquisition of an original content creator would help fulfill Apple’s purpose, not derail it.
Now available in iBooks —> The Tesla Bubble
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