Could this be the Real Netflix Killer?

Jefferies analyst Peter Misek is out with a significant new data point on Apple (NASDAQ:AAPL) saying he believes the company is about to launch a new video-focused cloud-based service.

Misek sees the new service as a potential game-changer for Apple and the industry. While he currently retains his estimates & $450 price target (Buy rated of course), the potential impact on F2012 #’s seems huge.

Super Data Centers
Jefferies notes they spent the last couple of weeks channel checking with developers and content providers on Apple’s possible plans regarding the cloud and their assault on the living room. First, they believe Apple’s data center in North Carolina has gone live or will do so shortly. Second, some unconfirmed indications point to Apple possibly building another super data center next to the first: 1) Apple purchased adjacent land at a high price; 2) aerial footage shows Apple has cleared adjacent land; and 3) at the announcement ceremony for the facility, a mock-up showed two side-by-side data centers.

Also, based on discussions with large multinational players, the firm additionally believes that plans for data center builds in other parts of the U.S. and Europe are accelerating meaningfully. They cannot trace the owner of these others back to Apple, but we believe the specs to be similar. They can envision Apple creating the service first in the United States and then rolling it out internationally.

While much has been speculated on what these data centers could be for it seems that much of this is likely being built for video. How do they come to that hypothesis? It is a guess based on the size of the storage that has been purchased, the fact that video consumes far more data than audio, and the introduction of a simple audio locker or cloud-based version of iTunes is unlikely to require this much storage and capability out of the gate. Second Jeffries finds some of the chatter in the content world to be centered around the iPad and future services. They find it notable that the content companies, citing a lack of domain license, asked Cablevision to remove channels from its iPad app. They believe these same companies are negotiating some sort of deal with Apple. They would find it easy to believe that Jobs’ final hurrah before turning the reins over would be to revolutionize video much in the same way Apple has transformed the mobile, computing, and music world. It is also notable that his authorized biography is due in 2012

New Apple Product = iTV?
So what else could they guess is going on? Jefferies continues to believe that the assault on the living room likely means the introduction of another Apple appliance or device. They find it difficult to believe that the Apple TV is the best Apple can do.

While a simple TV is certainly possible, they just believe Apple wants to do something completely different. Given Apple’s historical preference to innovate a new category could Apple’s introduction of the iTV allow it to launch a premium-priced piece of hardware?

New Cloud-Based Services
In terms of content, Jefferies thinks some sort of subscription model also makes sense. They believe something unique could be done in video with all the disparate content we watch from TV shows to movies to YouTube to home movies.

Jefferies thinks the following combination could make sense:
TV model: call it the “Best of TV” but time delayed and available for a fixed priceon an all-you-can-eat basis. Older movie content (ala Netflix).

They believe Apple has learned much from having Netflix on the Apple TV and cannot help but feel Apple will try to improve on this model somehow. So how does Apple convince Hollywood and other content creators to license it? In firm’s view, the best way to do that would be the model they use for App developers: let them take the vast majority of the revenue while you use the content to drive device sales and monetize it that way.

Estimate potential: Jefferies notes they have run a sensitivity analysis on the potential impact. Assuming an iTV launch, a cloud-based services launch, and a halo effect on existing devices (boosting units and ASP by 5%), FY12 revenues would range from $150-171B vs their $134B and consensus’ $118B. Also notably, these revenue ranges would be 50% or 70% higher than FY11 consensus revenues of $100B. 50-70% revenue growth would appear to be a fair tradeoff for a ~100-200bp hit to GM. Finally, EPS would range from ~$32-36 vs Jeffco’s estimate of $28 and consensus’ ~$26.50.

What does this mean for Apple?
The cloud-based services will likely drive a halo effect for Apple’s existing products and the iTV. For Apple this likely means more device sales and higher ASPs on existing products than they initially thought. Due to the rise of Android, they believed and the Street believed that Apple’s amazing run of innovative new devices was coming to an end meaning that Apple would be forced to compete on price in the future.

But if they are right about the cloud-based services, the main advantage of this closed system will be to ensure a quality, easy-to-use and leverageble content store similar and potentially more powerful than the App Store. This most likely means estimates are too conservative in 2012 and beyond.

Notablecalls: I think it was Morgan Stanley analyst Rebecca Runkle that first used the term ‘Halo Effect’ in relation to Apple. That was in 2005. Apple had a market cap of 30 billion back then vs $300 billion today.

And there it is again – Halo effect..

For some time I’ve considered myself to be part of the camp that believed it would be increasingly difficult for Apple to unveil revolutionary products. I was proven wrong again when the iPad was announced. Guess I’ll be wrong again.

A lot of the time Apple trades on upcoming product chatter & with Jeffco’s Misek coming out with these iTv comments people will get excited again.

Just take a look at these F2012 #’s – are these above consensus or what? 150-171B vs. 118B consensus?!

This note is going to be the talk of the day.

PS: Apple has way more resources than Netflix (NFLX) to lure content from movie studios. If they are willing to give away content revenue to the studios in order to sell hardware, I just don’t see how Netflix can compete with that proposition.

Could this be the real Netflix (NFLX) killer?

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