Replies to post #55174 on Apple Inc (AAPL)

[langostino]

The media thrives on

oversimplified labels like "content vs. distribution" ... as though there is some kind of uni-dimensional all or nothing game. There never has been and never will be. Just as there always will be a large variety of mixed models, niche models, vertically integrated models, horizontal models, etc, and just as there will always be dynamic and competitive give-and-take tension among them. (For example, remember Comcast had a hostile bid prepared to try and acquire Disney not much more than a year ago, that Rupert Murdoch has both DISH satellite distribution and FOX content, that Comcast owns a variety of content including The Golf Channel, Outdoor Life Network, and in partnership with Disney, E! Entertainment).

At the premium end of the content scale, "content is king" simply means gross margins will be higher than so-called distribution margins. The reverse will be true at mid-market and non-premium, where "distribution" will gobble a larger percentage of the gross profits.

And in cases where there is vertical integration, the distinction becomes like separating the proportion of black and white from grey. Much like the neverending discussion of whether Apple is a "hardware company" or a "software company". It's a vertically integrated company that derives an aggregate blended revenue stream from its combined assets. About the closest one could come to figuring out the relative value of "hardware" to "software" is to think about how much each portion of the company's assets would draw if they were severed and auctioned off. Or to think about how much hardware could be sold without the software, and how much software could be sold without the hardware. Anyone who sits down and does a modicum of rational thinking about it knows that (a) Apple is neither a "hardware" nor a "software" company, and (b) the lionshare of its net asset value and profitability on the PC side of the business flow from the value of its software, not its hardware, while the reverse is true on the iPods side of the business.