The Hollywood Sign stands above Los Angeles, California. (Photographer: Susan Goldman/Bloomberg News.)

Apple and Amazon Don’t Need to Buy Hollywood

(Bloomberg Opinion) -- This week's AT&T-Time Warner court ruling was the starter pistol for the sale of anything and everything in the entertainment industry. There are two questions relevant to the technology industry: Will Silicon Valley do the buying? And should it?

I can't answer the first question because acquisitions are unpredictable. (See Amazon plus a supermarket chain.) On the second query: Debatable, but probably not. A continuing deal frenzy by media, entertainment and telecom companies is a reaction to Netflix Inc., YouTube, Facebook Inc. and other online hangouts absorbing more of people's time and money. Tech companies should stand on the sidelines of this desperate reshuffling that they caused. 

Apple and Amazon Don’t Need to Buy Hollywood
 

Ideas have swirled for years that a tech heavyweight should buy fill-in-the-blank media or entertainment company/asset. Some of those notions were surely wishful thinking. But sometimes there's truthiness behind the gossip. Apple Inc. floated the idea of purchasing Time Warner Inc. before it agreed to sell itself to the phone company -- although even Time Warner's boss didn't think the folks in Cupertino, California, were serious. Amazon.com Inc. has flirted with Dish Network Corp. The Wall Street Journal also reported this week that Amazon explored the idea of splitting up the assets of 21st Century Fox Inc. with cable-and-entertainment giant Comcast Corp., which is now hunting Fox on its own. 

It's a safe bet that investment bankers responsible for shopping Lions Gate Entertainment Corp., parts of Fox, or anything else, will be knocking on doors of tech companies —  some of which will take a look out of real acquisition interest, curiosity or mercenary intent to peek at another company's financial secrets. Whether tech actually splurges on any media companies ...¯\_(ツ)_/¯. 

None of them have, even though the opportunity has been there for years. That should tell you something about whether the companies think it's wise to go shopping in Hollywood. 

But, times change. Apple, Alphabet Inc.’s Google, Facebook and Amazon all have growing ambitions in web video, and some of their strategies are muddled right now. Buying an existing entertainment company might be a shortcut to their entertainment nirvanas.

Apple and Amazon Don’t Need to Buy Hollywood

With a single acquisition, Apple or Amazon could buy a collection of people who are experienced at creating popular entertainment, the licensing rights for key programming such as sports, and a repository of known characters or concepts from which to draw. (I wonder if Amazon CEO Jeff Bezos, who's a science fiction nerd, is a fan of "X-Men," whose movie rights are owned by Fox.) Those are compelling reasons for a tech king to buy a prefabricated entertainment empire rather than build one from scratch. 

On the build-versus-buy side of the ledger, however, is the lesson from Netflix: You don't need to acquire an entertainment company to become an entertainment powerhouse.

The Netflix blueprint was first to rent TV series and movies from entertainment companies, which were happy to pocket the extra change. Then Netflix became strong enough to start cutting the traditional media companies out of the picture. It opened its wallet to people like genius TV producer Ryan Murphy so he would create shows for Netflix instead of for Fox. No M&A needed. 

Everyone knows this blueprint now. That doesn't mean it's easy to replicate. Even Netflix might not be successful with its own blueprint. It's also harder for tech superpowers to follow the same playbook now that everyone is wise to it and now that Netflix has a decade head start. Amazon followed the Netflix model and hasn't been as successful. It will get more expensive or tougher to buy entertainment programming because every company wants to lock up its creations in its own Netflix-like subscription service.

Doing the Netflix thing is hard, expensive and risky. I still think it's better than splurging billions on an existing company to kick-start a tech entertainment empire.

Apple and Amazon Don’t Need to Buy Hollywood

It's not necessarily faster, cheaper or less risky to buy a known quantity in Hollywood. You might have noticed that traditional entertainment companies fall on their faces quite a lot and have to reboot their programming strategies. The entertainment industry's response to the rise of Netflix was to create a billion dumb web video apps. Why should tech companies pay through the nose for that? 

The tech giants also have big assets on their side: time and money —  lots and lots of it. Amazon's answer to its middling success with its web-streaming service was to replace the leadership responsible for picking which TV shows and movies to make and finance and throw a boatload more cash at the problem. Likewise, Apple has failed to reinvent entertainment despite repeated promises to do so. Plan B — or is it Plan D or Z? —  is to hire management from an entertainment company and rain cash on smart creators. Apple could hire 70 potential Ryan Murphys for less than the cost of buying CBS Corp. 

I still have nagging questions about why Apple and Amazon in particular are splurging on internet entertainment at all. Nevertheless, if they and the other tech superstars want to be entertainment successes, it's not required to buy the companies behind masterpieces like "Monster Trucks."  

©2018 Bloomberg L.P.