How Apple’s 2015 negotiations for Time Warner bundling deal briefly led to acquisition talks

As AT&T and Discovery discussed putting together their content assets, they specifically structured a deal to give the combined company flexibility to merge or sell down the road — perhaps to Apple.

Apple is one of the few companies that has the balance sheet to buy WarnerMedia-Discovery, a company that will likely have a market capitalization of more than $100 billion when it begins trading publicly next year, assuming regulatory approval.

But it’s not clear if Apple has any interest in a major media acquisition. The company’s history suggests Chief Executive Officer Tim Cook would shy away from a huge deal. Apple’s biggest deal ever was a mere $3 billion — for headphones maker Beats Electronics in 2014. To put that in perspective, Apple has a market valuation of more than $2.1 trillion.

Apple’s growing market power is also under increasing scrutiny by regulators and has been the subject of a recently concluded court trial brought by Fortnite maker Epic. Shelling out $100 billion or more for an external company may sound alarm bells with politicians that Cook would rather not ring.

But, to quote a frequently used investment phrase, past performance is no guarantee of future results. Apple has made a relatively small investment in original content, with such series as “Ted Lasso” and “The Morning Show,” and Apple TV+ remains a minnow among streaming giants Netflix, Amazon Prime Video, Disney, and the newly combined WarnerMedia-Discovery. If Apple wants to compete, the easiest way forward is to buy a media giant — and there are already some historical ties between WarnerMedia and Apple.

In 2015, Cook, Eddy Cue, Apple’s senior vice president of internet software and services, Jeff Bewkes, then-Time Warner CEO, and former Time Warner executive vice president Olaf Olafsson met to discuss partnership opportunities around Apple exclusively offering Time Warner’s content, according to people familiar with the matter. The meetings were reported by the Financial Times in 2016, but CNBC has learned of additional details.

The four executives discussed offering Turner and HBO content outside of the cable bundle for about $19 per month, said a person familiar with the contents of the conversation, who asked not to be named because the discussions were private. While Time Warner was already offering HBO Go separately from the traditional pay-TV ecosystem for $15 per month, taking CNN, TBS, TNT and other Turner networks outside of the broader cable bundle would have been a groundbreaking step. Even today, nearly six years later, consumers can’t buy a monthly subscription to a company’s linear networks separate from the larger cable bundle.

The executives discussed the possibility of Apple being the exclusive provider of the offer, giving Apple device users the ability to purchase the Time Warner bundle through the iTunes store.

Over a series of weeks, both Apple and Time Warner soured on the idea. Taking Turner’s networks outside the cable bundle would likely have led to a chorus of angry pay-TV distributors who thought they were paying for exclusive content. And Apple already offered media content — movies and TV shows — from a large number of media companies through the iTunes store. Time Warner wanted Apple to market the bundle globally, but Apple was hesitant to irritate its other media partners.

During the talks, Bewkes and Cook broached the subject of Apple acquiring Time Warner to deal with one of the biggest hurdles of the $19-per-month concept: What if Apple or Time Warner eventually wanted to back out? Once the companies went live with the offer, they’d need to stay aligned. Walking away from the deal could be disastrous to both companies’ external relationships.

Cue expressed interest in a full acquisition, but Cook ultimately wasn’t ready to pull the trigger on what would likely would have been close to a $100 billion deal, two of the people said. Both Bewkes and Cook hadn’t initially expected the talks to lead to thoughts of an acquisition, said the people. Time Warner had successfully fought off a hostile takeover offer from Fox a year earlier.

A year later, in late 2016, Bewkes agreed to sell Time Warner to AT&T for more than $105 billion including debt.

A spokesman for Apple declined to comment.

Apple has another significant tie to WarnerMedia — former HBO chief Richard Plepler.

Plepler left HBO after disagreeing with current AT&T CEO John Stankey about the direction of the premium network, as detailed by CNBC last year.

Months later, he signed a five-year deal with Apple TV+ to produce TV series, documentaries and feature films exclusively for the streaming service. The coronavirus pandemic delayed the production of most of Plepler’s efforts, but some of his work at Eden Productions work is beginning to trickle out, such as the limited series “In With The Devil,” starring Greg Kinnear, Sepideh Moafi, Taron Egerton and Ray Liotta.

If Cook wants to know inside details about HBO, he’s got someone on his payroll to ask.

Apple TV+ accounts for just 3.7% of the company’s total services revenue, according to Barclays analyst Tim Long. Free trial periods end in July, which is likely to lead to increased churn. Apple TV+ probably had about 40 million total subscribers — many on free trials — at the end of 2020, Barclays estimated.

“Overall, Apple TV+ has underperformed versus original expectations after its launch at the end of 2019,” Long said in note to clients. “We think Apple’s budget for producing original content is far below the amount Netflix has spent in the last decade. It could take years and still not move the needle.”

If Apple wants to stay in the streaming video world, Cook may need to buck the company’s history of avoiding big-money M&A. The WarnerMedia-Discovery deal isn’t expected to close until mid-2022. That gives Cook a year to do some serious thinking about his company’s future.

WATCH: CNBC’s full interview with Discovery CEO David Zaslav and AT&T CEO John Stankey