Disney and Apple, Sitting in a Tree

Wednesday, 16 August 2023

Kim Masters and Alex Weprin, writing for The Hollywood Reporter under the headline “A Disney Sale to Apple? Don’t Count It Out This Time”:

There clearly is no buyer like Apple, which is sitting on $62 billion in cash and cash equivalents and has a $2.8 trillion market cap. And while it may be very true that Apple doesn’t want to buy a studio, maybe it would want to buy this studio — the one that, despite the challenges of the moment, has a vault full of priceless IP and remains the most valuable brand in entertainment.

And there has been a long-standing “special relationship” between Disney and Apple: Steve Jobs served on Disney’s board of directors from 2006 until his death in 2011. Iger joined Apple’s board shortly after Jobs died. He resigned from that position Sept. 10, 2019, the same day Apple officially announced that it was getting into the content business through its Apple TV+ service.

I do not think Apple has any interest in buying Disney. Apple frequently acquires small companies — on average, about once per month. Many of these acquisitions are so quiet they get no press coverage whatsoever, which is how Apple likes it. When acquisitions are noted, the company has a boilerplate response: “Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans.” They’d need a longer statement if they bought Disney.

Beats, of course, was the exception to the rule. At $3 billion in 2014, it remains, by far, Apple’s largest-ever acquisition. Disney’s current market cap is $158 billion. I’m in no way arguing that Apple couldn’t afford to buy Disney, even at a generous markup, but rather that enormous industry-shuffling acquisitions like that aren’t what Apple does, nor, in my opinion, should do. Apple has a very distinct company culture and focus. PA Semi, which Apple acquired with relatively little fanfare for a mere $278 million in 2008, is Apple’s style of acquisition. Apple is not comprised of divisional fiefdoms like Microsoft,1 which is buying Activision for $69 billion, or Amazon, which bought its way into the grocery store market by acquiring Whole Foods for $14 billion. Manu Cornet’s classic 2011 comic strip illustrating tech company org charts remains apt, and is only funny because it’s accurate.2

Disney, too, has a very distinct company culture and focus. And there are some obvious areas where Disney’s and Apple’s cultures overlap: they are both family-friendly iconic brands with outsized cultural influence, with reputations for industry-leading design and engineering. What each company does, they strive to do best. And because they prioritize quality over all else, both companies have built enormous devoted customer bases that are really more like fan bases. The reason the notion of an Apple-Disney acquisition has any legs at all is that it’s not crazy. If Apple were to buy a major entertainment/media company, they’d probably want Disney. Why drink Veuve Clicquot when you can afford Dom Perignon? If you’re going to buy, buy the best.3 4

And if Disney were to look for a buyer, I can’t think of a single big-enough-to-afford-it company other than Apple that they would want to sell to. Berkshire Hathaway is the only other big-enough company I can think of that might be trusted to let Disney be Disney. But Berkshire today holds no Disney stock at all, which strongly suggests Warren Buffett would have no interest in buying the whole company at its current price. Berkshire does, though, own 6 percent of Apple’s stock,5 so they would, by proxy, own a sizable stake in Disney if ... Apple bought Disney.

I just don’t think Apple has any such interest or appetite. Nor do I think Disney envisions its own future as anything but the independent company it has been ever since Walt and Roy Disney founded the Disney Brothers Cartoon Studio 100 years ago.

  1. Microsoft and Apple, forged in the image of their founders, have long been opposites in so many regards. Their contrasting strategies regarding large acquisitions exemplify that. Microsoft has made eight acquisitions larger than Apple’s $3 billion purchase of Beats (all prices in billions): Activision Blizzard ($69), LinkedIn ($26), Nuance ($20), Skype ($8.5), ZeniMax ($8.1), GitHub ($7.5), Nokia ($7.2), and aQuantive ($6.3). I’d even toss in Minecraft-maker Mojang at $2.5 billion, which is just under the price Apple paid for Beats. Would Microsoft consider buying Disney? I think they might, especially if Disney’s stock dips further. (Let’s put aside the regulatory hurdles such a deal would obviously face — Microsoft seems to relish such battles.) Microsoft is big in gaming, of course, but stands alone amongst Apple, Amazon, and Google with no foothold in streaming video. Would Disney consider selling itself to Microsoft? I sure hope not. ↩︎

  2. Although I think that if redrawn today, Meta/Facebook’s cartoon org chart ought to look more like a cross between Apple’s and Amazon’s. The buck stops with Zuck. And while we know the bullseye in the 2011 Apple chart was Steve Jobs, Apple’s organization today is not that much more hierarchical than it was then. I’d draw it more like a small council in the center, rather than a singular figure. But it’s still spoke-and-hub. Also worth noting: Walt Disney’s 1957 business strategy chart, and a 1967 follow-up. (Disney died in 1966, so this latter chart describes the company as he left it.) ↩︎︎

  3. Amazon bought MGM for $8.5 billion two years ago, and while Apple was rumored to have considered it, that never made much sense to me outside the fact that Phil Schiller is perhaps an even bigger James Bond fan than I am. ↩︎︎

  4. OK, here’s a what-if for the ages: What if Apple, not Disney, had bought Pixar? Practically speaking the timing would seemingly have made it impossible. Disney bought Pixar for $7.4 billion January 2006, a full year before the iPhone was announced. Apple was thriving by that time — the Mac had completed its software transition from classic Mac OS to Mac OS X, and was beginning its hardware transition from PowerPC to Intel; the iPod was a cultural sensation and smash hit; and the company’s foray into its own retail stores was proving to be an, err, genius decision. But Apple circa 2006 was not acquire another company for $7.4 billion thriving. In October 2005 Apple announced its then-best-ever financial year: $14 billion in revenue, $1.3 billion in profit. Apple’s fiscal 2022, for comparison: $316 billion in revenue, and a smooth $100 billion in profit. Apple today generates more profit every 5 days than it did in the entire year of 2006. Apple’s market cap in January 2006: $60 billion. Today: $3,000 billion.

    Not to mention that Apple had no strategic reason to acquire Pixar in 2006. Apple TV+ didn’t launch until 2019. The iTunes Store didn’t even start renting movies until 2008. Jobs selling Pixar (in which he owned over $1 billion in stock at the price it sold to Disney) to Apple would have looked fishy, to say the least. Also not to mention that Disney held unique leverage over Pixar’s ability to shop itself to other potential suitors — Disney didn’t own Pixar, but they did own the intellectual property for all of the movies Pixar had made to date: Toy Story, A Bug’s Life, Monsters Inc., Finding Nemo, The Incredibles, and the then-upcoming Cars, Ratatouille, WALL-E, and Up. Buying Pixar without acquiring those rights would have been like, well, buying Disney today without acquiring Mickey Mouse, Snow White, Star Wars, and Marvel.

    But if we wave all that inconvenient historical timing away, in the abstract it’s easy today to imagine Pixar as a film studio (and engineering) subsidiary of Apple. It would be both a perfect cultural and strategic fit. ↩︎︎

  5. I was well aware that Berkshire Hathaway owns a 6 percent stake in Apple, but until I looked at this list of its holdings, I had no idea that Berkshire’s Apple holdings account for 46 percent of its entire portfolio. That’s not to say Apple accounts for 46 percent of Berkshire’s entire value — only its public stock holdings. But still, that’s astonishing. Warren Buffett has always measured Berkshire’s success against the S&P 500. Apple is currently weighted at about 7 percent in the S&P 500. As AAPL goes, so go Berkshire’s odds of beating the S&P 500 in the next few years.* ↩︎︎

    * While we’re talking about Berkshire Hathaway, let’s celebrate the glory that is their website. I’m not joking. It is a perfect distillation and reflection of the company and its values. Anyone who doesn’t appreciate it as a nearly perfect website is the sort of fool who doesn’t recognize that, sometimes, a good slice of buttered toast is just the thing and all you need.