Apple Looking to Develop Original Shows as Part of New Video Strategy

 Editors’ pick: Originally published Jan. 29.

Apple (AAPL) , which is struggling to line up networks and cable channels for its long-delayed "skinny bundle" offering of a lower-priced video service, is trying a new tack and talking with TV producers and Hollywood studios about investing in TV shows to offer exclusively to its iTunes customers.

The Cupertino-based tech giant began sounding out Hollywood's creative community late last year, but has yet to sign any agreements, according to two people with knowledge of the overtures. One plan is to have deals in place so Apple can announce exclusive content as part of a cable-like offering in September, when it is expected to unveil its iPhone 7, said one of the people.

An Apple spokesman had no comment.

Investing in original programming is a proven path for tech companies to help draw subscribers to their over-the-top services. Amazon (AMZN)  produces award-winning shows such as Transparent and Mozart in The Jungle, and streams them exclusively for its Prime customers.

Netflix (NFLX) licenses its hit shows such as House of Cards, Orange is the New Black, and Narcos from Hollywood producers.

"Since the beginning of television, content differentiation has been the single most important element driving the business," said Blair Westlake, former chairman of Universal TV and a one-time top Microsoft  executive. "Apple undoubtedly recognized that offering programming that is only available on iTunes is a 'must have,' just as it is for mainstream TV."

Apple's conversations with Hollywood executives are being led by Eddy Cue, the company's senior vice-president of Internet sales and software who is the company's chief entertainment architect. The talks also include Robert Kondrk, vice-president of iTunes content, according to one of the people.

A new TV offering could help Apple restore its lost luster on Wall Street, which is looking for the introduction of new products to invigorate a stock price that has fallen by 31 percent in the last three months.

Its stock closed at $94.09 on Thursday, up 67 cents, after reporting its fiscal first quarter earnings on Wednesday.  

Apple expects unit sales of its flagship iPhone to decline in its upcoming second quarter, CEO Tim Cook told analysts following the company's earnings announcement. The company reported that it sold 74.8 million iPhones in the first quarter, below Wall Street expectations.

A new TV offering could also help sales of its Apple TV. Cook said on the earnings call that the quarter was "the best by far for Apple TV sales," although the company didn't break out numbers for the device.

Apple is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. "We actually have a metric that can explain and monetize the value of brand loyalty," wrote Cramer. "[Apple] just didn't explain it that way. I am talking about the slide in the Apple deck called 'service revenue,' which showed that installed base revenues -- the ones we all pay for iTunes, music, the app store licensing, service parts, iCloud and Apple Pay -- are growing at an incredible 23% year over year, from $25 billion in fiscal 2014 to $31.2 billion in fiscal 2015. That's the number that we need to key on, not unit devices."

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Apple continues to work on its version of a slimmed-down cable TV service, ESPN president John Skipper intimated during a recent Wall Street Journal interview. The Disney-owned (DIS) sports cable behemoth will "continue to try to work with them," Skipper said.

In an interview last May at an industry conference, CBS (CBS) CEO Leslie Moonves said his company would "probably" sign a deal with Apple to carry his network. "We're very excited about it," he said at the conference, which was sponsored by re/code. 

This article is commentary by an independent contributor. At the time of publication, the author held  positions in Apple, CBS, Disney and Netflix.

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