Apple in Show Business? Don’t Get Too Excited About It

Apple (NASDAQ: AAPL) is working out a deal to acquire the rights to an animated film from the Ireland-based studio Cartoon Saloon, according to Bloomberg. Details are scant — all we know is that the movie has not yet been made and that a theatrical release may be the goal. Releasing a movie for the silver screen can be a highly profitable endeavor, but Apple shareholders shouldn’t get too excited… at least not yet.

There’s no business like show business

On the surface, it makes sense why Apple would want to pull the trigger on movie production. Other tech rivals like Amazon and Alphabet‘s YouTube have been ramping up spending on original content creation. Even TV streaming pioneer Netflix has acquired the rights to movies, although up to this point, their theatrical releases have been limited.

In spite of the fading popularity of going to the cinema, studios like Disney (NYSE: DIS) continue to prove that it still is a profitable undertaking. Its latest film via Pixar, The Incredibles 2, just set new records for an animated flick’s opening weekend, raking in over $230 million worldwide in its first few days at the box office.

Thus, Apple looks set to be the latest company to plow into the realm of original entertainment creation and distribution. The deal likely won’t amount to much on Apple’s financials, though. Revenues and bottom-line profits were $61.1 billion and $13.8 billion, respectively, in the last reported quarter, so even a few blockbuster hits would be a drop in the bucket compared to the money made by the company’s iPhone segment.

So what’s Apple really up to here?

Image source: Getty Images.

Apple’s endgame

A blockbuster at the cinema isn’t just about the ticket sales. Merchandise sales also could be a factor, as could home entertainment distribution options. And that’s where Apple’s movie ambitions could get interesting.

Disney’s vertically integrated entertainment empire is proof of the power of controlling as much of the entertainment experience as possible, from toys to movies to theme parks. But up until now, even Disney has been missing a piece of that entertainment supply chain: a stand-alone streaming service similar to Netflix. The company is gearing up for the launch of one in early 2019, however, and hopes to use its vast library of content to lure in subscribers.

A hit at the cinema could be Apple’s shot at doing something similar. The company has produced original TV shows and has shown a commitment to making more, like the recently announced multiyear deal with Oprah Winfrey. However, new TV series might be a tough sell to potential subscribers of an Apple TV streaming service with the likes of Netflix, Amazon, and soon Disney already playing in that sandbox. But a box-office hit exclusive to an Apple subscription service? Maybe that would be enough of a teaser to get consumers to sign up for a trial run.

iPhone sales still are going strong, but not growing as fast as in years past for the tech giant. Recurring revenues from Apple services like TV streaming could be the key to keeping that momentum going. The segment was only 15% of total sales last quarter but grew 30% year over year.

If purchasing an animated movie helps, that would be a fantastic deal for shareholders. Just don’t get too hopeful about it yet.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo and his clients own shares of Alphabet (A shares), Alphabet (C shares), Apple, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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