What if Apple or Google simply bypassed Networks and Studios?

For a while now I’ve been wondering why Apple puts up with the intimidation and limitations placed on “premium content” from the Studios and Networks. Instead of being intimidated why not simply replace them by going direct to the producers/talent and (on the other end) the audience?

Even if they did not plan to do it, the threat should cause the existing players to really seriously reconsider their position. Apple currently has about $34 billion in cash, while Google has about $22 billion in cash.  Keep in mind too, that the goal of all production is to recoup the investment and make a profit. In the long run the original capital is not eroded unless there are a string of commercial failures.

Keep in mind that either party could use a lot of the modern advantages of a greenfield studio so the real cost of production for a completely new player would be significantly less than entrenched workflows and cost structures.

Let’s take just Apple’s little pot of gold. With $34 billion they could produce 566 “average cost” movies. (Average cost is $60 million, up from $35 million a decade ago – and yet the movies aren’t twice as entertaining!)  The Guardian and other sources suggest there has been a peak of about 600 releases from the studios generally considered to be “Hollywood”, although that number is expected to fall to around 400 for 2009.

Apple alone could finance/produce more movies than the entire current output of “Hollywood”. Think about that for a minute. (Not counting independent features, which cost a lot less and generally don’t recoup their investment.)

If we turn to Television where a hour “scripted drama” (whether dramatic or funny) generally costs around $3 million an episode, although some of the newer shows (Mad Men, Friday Night Lights) are producing for under $2 million an episode. If we stick to that $2 million mark, although I expect a new studio would be more efficient than that, then Apple alone could produce 17,000 one hour TV episodes.

17,000 one hour shows equates to 850 shows running 20 episodes a year. There are not 850 shows being produced in this budget space in the USA. There are no doubt more series overall, but they generally cost a lot less per episode and/or run for shorter seasons.

So, between them Apple and Google could completely refinance the film and television production industries without any input from NBC, ABC, WB, Sony or anyone else.

Remember, MGM as a production studio with a fairly good library of titles, is on the block right now and expected to be worth less than $2 billion. Comcast is buying half of NBC Universal for about $30 billion, but the broadcast network is considered to be a liability in that deal, rather than an asset. (Comcast were expected, at one point, to sell the broadcast network, although that seems to be off the table right now.)

Clearly, either Google or Apple could destroy the existing content production industries without borrowing or risking their business. Just what leverage do the current middlemen really have?

Update: Mike Egan at Cult of Mac makes a similar suggestion in mid 2011.