A friend of mine at Intel Capital was in town a week or two ago and we sat down to have a long discussion about the future of TV and how social media and computing would integrate onto the big screen. He’s been seeing an increasing convergence of computing and entertainment, so it’s no surprise that in my brief time at Shelby.tv this summer, I’ve seen a host of new entrants in this space from enhanced social TV experiences like SocialGuide to platforms like Flingo.
In most multi-billion dollar markets, we usually see a lot of hot M&A activity and I suspect this expanded TV market (both hardware and software) will be no different. There’s one company that has a ton of cash on their balance sheet lately that hasn’t been using it for acquisitions, though: Apple.
I came across a great Quora post the other day about how Apple uses their large cash balance to achieve an advantage in their supply chain for their new products. I started thinking a lot about how Apple’s strategy with the iPhone and iPad might look should it decide to release an actual TV (as opposed to today’s AppleTV product). Chris Dixon has already written an interesting post about this (go read it if you haven’t yet), but in light of recent noise this week about how Apple’s release of a TV could increase their market cap by $50B-100B, I think it’s worth revisiting. Whether the market cap figure ends up up being relevant or not, I’d be willing to bet that when Apple does choose to enter this industry, we’ll see them deploy those cash reserves in a similar way to what they’ve done in the past. In the large flat screen market, this may be even more of an advantageous and disruptive tactic.
Over the past few years, companies like Samsung and Sony entered joint venture agreements because the fixed costs of purchasing LCD factories are so high and they needed to share some risk (among other reasons). In the case of Apple, they can use their incredible cash balance to easily get exclusive rights to next-gen display factories that will help ensure their success in disrupting the digital TV market. Even as a late entrant, Apple is well poised to help capture a big piece of the pie. As Chris Dixon says:
Perhaps Apple won’t enter the market due to its structure. But that didn’t stop them in mobile phones where the structure was similarly difficult. The mistake analysts made about the iPhone was to assume the current industry structure would be sustained after Apple’s entry. I’d be wary of making the same assumption about the TV industry.
Bingo. Apple has the cash position to do things that other TV manufacturers can’t do in their respective supply chains, and they’ll be able to tilt the industry structure in their favor as a result. So, when will Apple release the TV? My guess is probably not until 2012, but I’m no oracle. And when they do release it, I sure can’t wait to fire up Shelby on it.