Cord-cutting customers, lured by the siren song of streaming Internet video, were supposed to spell Comcast Corporation (NASDAQ:CMCSA)‘s doom. But as evidenced by its soaring stock price — up 47% in the last 12 months — Comcast is actually thriving. Amid Apple Inc. (NASDAQ:AAPL)‘s rumored attempts to strike deals with content providers, Comcast’s stunning success gives it greater bargaining power. This is bad news for Apple Inc. (NASDAQ:AAPL), which has reportedly struggled to make progress in the talks. An Apple-branded TV in 2013 might not be as sure as some analysts speculate.
Content is still king
On Feb. 12, Comcast reported excellent fourth-quarter results, fully encapsulating the company’s momentum. The company’s adjusted EPS was up more than 22% year over year. More importantly, the company raked in $7.9 billion in free cash flow, up 13.3% from last year. On the strength of continued solid performance, the company announced a 20% increase in its dividend and a plan to execute a $2 billion share repurchase program during the year.
In light of Comcast’s strong fundamental performance, I hardly think it will make any compromises to collaborate with disruptive forces like Apple Inc. (NASDAQ:AAPL) or Netflix, Inc. (NASDAQ:NFLX) . Comcast may, indeed, strike a deal with these companies. But any deal would be one in which Comcast would come out even stronger.
Comcast’s position of power
Like icing on the cake, Comcast’s success has enabled the company to accelerate its purchase of the remaining 49% of NBC Universal from General Electric Company (NYSE:GE). In essence, the company is putting its foot down and claiming its rights to content. With a more meaningful hand in mass media, the company has greater control over shaping the way in which content is distributed in the future.
In fiscal 2012, Netflix reported some solid progress in deals with major studios, particularly its recent announcement of an exclusive deal to bring theatrical releases from The Walt Disney Company (NYSE:DIS) to Netflix domestic streaming in 2016. But here is the catch: it’s rumored that Netflix had to agree to pay a questionably large sum for the deal to go through. Analysts estimate the deal to cost Netflix more than $350 million annually — an amount equal to more than one-third of Netflix’ fiscal 2012 gross margin. Content isn’t cheap when the provider has the upper hand.
Apple Inc. (NASDAQ:AAPL)’s innovation and cash problems
In the meantime, Apple’s innovation and cash balance continue to make negative headlines. Hedge fund star David Einhorn went as far as to characterize Apple Inc. (NASDAQ:AAPL)’s cash policy as a “depression-era mentality.” And as far as Apple’s innovation, the company’s slowing growth rates and market share loss to Samsung are raising eyebrows.
Launching a revolutionary TV could answer to both concerns. Even if Apple has to fork out big bucks to work with content providers like Comcast, it would give Apple an avenue to put more cash to work on behalf of shareholders.
According to a rumor today, it looks like Apple may indeed be working on a deeper push into TV by opening up the Apple TV platform to developers. This could be part of Apple’s response to its failed attempts to reach agreements with content providers — namely, making Apple’s platform more compelling to content providers before it attempts to go all out on a physical television and a TV service.