Apple's (AAPL) New TV Service Likely to be Much More Disruptive Than 'Skinny Bundle,' Says Pacific Crest (CMCSA) (TWC) (TWX)

Apple (NASDAQ: AAPL) will launch a disruptive virtual MVPD service later this year, according to Pacific Crest analyst Andy Hargreaves. In his view, the new TV service will be positive for network owners like Time Warner (NYSE: TWX), CBS Corp. (NYSE: CBS), 21st Century Fox (NASDAQ: FOXA), AMC Networks (NASDAQ: AMCX), and Disney (NYSE: DIS), and negative for traditional MVPDs, like Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC).

Hargreaves explained, "We believe Apple will use these advantages to launch a virtual MVPD product that is likely to be marketed as a high-quality service aimed at consumers who want a better TV experience, rather than a low-cost "skinny bundle." To date, most investors have focused on the potential for virtual MVPDs to generate price disruption, but consumers have demonstrated an incredible willingness to pay for TV along with a severe dislike for most current providers. This creates a large opportunity that we expect Apple to target with a service that likely costs $40 to $50 per month for a medium-sized base package, but provides more attractive hardware, improved personalization, better mobility, more effective content discovery, faster product development and better customer service."

"On our list, we believe TWX is best positioned to benefit, but also see CBS, FOXA and DIS as well positioned. We also see AMCX as well positioned given the large audience its originals attract. Longer term, we believe Apple's service could also benefit network ad revenue by accelerating the move to dynamic ad insertion," continued the analyst.

Regarding impact for traditional MVPDs, Hargreaves said, "We estimate video distribution generates over 20% of EBITDA at most major cable companies and slightly under 20% at Comcast, which suggests an Apple service would create significant risk for CMCSA and TWC. Satellite providers are also highly at risk in our view, but pending M&A and spectrum value should help protect DISH (Nasdaq: DISH) and DTV (Nasdaq: DTV)."

Overall Hargreaves thinks Apple TV will improve sentiment for Apple, but in his view it is likely to have limited impact EPS.

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