It already has the music industry locked up tight within its iTunes store and ludicrously popular iPod devices. But Apple Inc. still wants a bigger piece of the media pie.
The world's most-valuable tech company could soon be locked in a battle with competitors Yahoo Inc. and Google Inc. to buy Hulu, the popular U.S. website that let users watch TV shows online, according to a published reports on Friday that cited anonymous sources close to the deal.
Hulu has been talking to potential buyers, offering two years of exclusive access to its shows online and three more years after that of non-exclusive access. The website, the ownership of which is shared by NBC Universal, News Corp., Walt Disney Co. and others, offers TV shows from the networks those companies control - NBC, Fox and ABC, respectively.
Apple executives have been placing renewed emphasis on providing popular television content as part of a broader media strategy, analysts say. Apple has distinguished itself in the consumer electronics space with its iPhones, iPods and the product that introduced tablet devices to the market, the iPad. But other companies are racing to keep up, and some are having success - especially Google, with its Android software platform for tablets and mobile phones.
"Once the technology reaches parity, the battle will be on content," said Channing Smith, co-manager of the Capital Advisors Growth Fund, which counts Apple stock among its biggest holdings. He would like to see the Hulu deal happen.
"Apple is focusing more on controlling the content offering to its enormous installed customer base. They have the most innovative technology and devices for consumers today. The final piece to Apple's ecosystem is the content."
Apple could certainly afford the purchase. The company is sitting on $76.2-billion (U.S.) in cash and investments, according to its third-quarter financial statements released this week. When reports emerged last year that Hulu was considering an IPO, the listing was estimated to value the company at roughly $2-billion - a drop in the bucket compared to what Apple has tucked away. Apple does not pay dividends to investors.
"Soon enough, shareholders are going to say, 'Look, either I need to see a dividend or you're going to have to do something with this [cash]'" said Mike McGuire, a media analyst with Gartner Inc.
Other companies are also angling for a piece of the online TV market.. This week, Amazon.com Inc. announced a non-exclusive agreement to stream online 2,000 episodes of shows from the CBS network, for subscribers of its Amazon Prime service in the U.S. CBS has so far kept its shows off the Hulu site.
But why would Comcast Corp., a cable company that owns NBC Universal, agree to a sale of Hulu to Apple, which could arguably undercut cable firms by offering on-demand shows on the Internet and connected devices such as iPads and mobile phones? It may not have a choice: Comcast owns equity in Hulu but has no voting rights. As a condition of the deal to acquire NBC earlier this year, the Federal Communications Commission said that Comcast is not allowed to refuse programming rights deals with online competitors. The other owners of Hulu could benefit from a sale, since it would eliminate an inherent tension in the structure of Hulu: it is owned by the very companies - TV networks and a cable firm - that do not want to see their business migrate entirely to the Internet. It would also put some cash in the pocket of another owner calling the shots, the private equity fund Providence Equity Partners.
Hulu initially built its popularity by providing free TV shows from some of the biggest TV networks online. But recently it has been in a push to charge for that content. Last June, it launched Hulu Plus, which gives paying subscribers access to a bigger library of shows and movies and the ability to watch them on devices other than a computer.
As of last month, Hulu Plus had 875,000 subscribers and CEO Jason Kilar predicted it would pass the 1-million mark before the end of the summer. He also estimated the site should bring in $500-million in subscription and advertising revenue this year.
But some question the value of such a deal for Apple. The iTunes store already offers recently-aired TV shows for purchase and rental, thanks to content rights deals the company has been able to strike with studios on its own.
"I don't necessarily discount the possibility that Apple would have an interest in Hulu," said Tim Bajarin, an analyst with California-based Creative Strategies Inc. who has been covering Apple for 30 years. "… [But] there's a stronger case to be made that Apple do more of a push to build their relationships with the movie and TV studios directly, and have greater control through that."