Analyst: Apple TV Network won't bring big Margins

Apple's plans for a streaming content network won't bring the company big money, but will help keep more consumers in the company's hardware ecosystem. Wells Fargo analyst Maynard Um thinks the costs of bringing quality content to viewers will leave Apple with slim margins for its rumored online television service.

An Apple streaming network won't be big money for the company, according to Maynard UmAn Apple streaming network won't be big money for the company, according to Maynard Um

In a note to investors Mr. Um said,

We believe margins may be low when taking content and other costs into account. Rather, we believe this strategy could be to drive further lock-in to stem any threats of attrition and potential to gain share (i.e. hardware sales). We believe the amount and quality of the content will dictate Apple's success though inversely cost Apple more to procure making critical mass more important to absorb the costs.

Mr. Um's comments come in response to a report that Apple is negotiating with ABC, CBS, Disney, Fox, and other networks to bring their content to a new online streaming service. Apple plans to offer shows as they air, just like traditional cable TV packages, and a library of back shows for on demand viewing.

Apple is expected to lock in deals in time for a June announcement and a September launch. So far, Apple hasn't offered up any comments to back up the report.

With news of an Apple streaming network on the way, it's only a small step to turn back to rumors of an Apple-branded television. Mr. Um says that isn't likely, at least for now.

"While this could be a prelude to an Apple television set, we believe the company will have to gain more service experience as well as subscription volumes and, hence, believe any television set is unlikely over the medium-term," he said.

An Apple online network was, however, too much for Piper Jaffray analyst Gene Munster's ongoing dream of an Apple television. He said this is the base Apple needs to jump into the television market, adding, "We expect this offering to lay the groundwork for an actual Apple television, potentially announced in 2016."

Mr. Munster has predicted an Apple television would launch each year for the past few years, and so far has been both wrong and disappointed. If Apple ever does announce its own television, Mr. Munster will go from being the Don Quixote of Apple television to the Benny.

Mr. Um is maintaining his "Market Weight" rating and US$73 to $134 target range for Apple's stock. Apple is currently trading at $127.52, up 0.48 (0.38%).