As we prepare for the release of Apple's (AAPL) latest iPad, which some speculate will be called iPad HD, traders are wondering how to play the second derivative plays around the product.
Most traders have been thinking about voice-transcription company Nuance (NUAN) as a prime way to do this. They speculate that Apple will include Siri, the voice-operated assistant, as part of the new iPad as a first step towards a remote control and interactive device with an Apple-branded TV.
They are probably correct that this feature will be included in the iPad. Nuance might see a pop on this news, but we've seen this before. Nuance isn't correlated with Siri's growth. It's a commodity underlying the service, but certainly not the key part of the service.
Those who thought the growth of Siri would lead to the wide adoption of voice services that would benefit Nuance's mobile business should look at their last quarter, where mobile revenues actually dropped quarter on quarter.
A more interesting second-order effect play might be Time Warner (TWX). Its HBO GO and Max GO are the best iPad apps I've seen for viewing TV content. They also work great on the iPhone. Whoever built the apps truly thought about the user's viewing experience and maximized the form factor of these mobile devices.
With the belief that the newest iPad will have superior video and audio features, Time Warner's apps look ready to continue shining.
Are these apps leading to new revenue streams for Time Warner? No, it's more about building loyalty with existing users and reducing churn. HBO currently has 28 million subscribers. Here's how Time Warner CEO Jeff Bewkes described how he sees GO in the latest earnings call:
The [subscribers] really like it. Viewership is up a fair amount in the homes that are using GO. It's pretty early to tell exactly what that will do mathematically to the churn across the base. So we expect it will be sometime before we start to get a real sense of that. But GO ... obviously makes it easier to watch HBO. It brings new [subscribers] in and extends the life of existing [subscribers]. So it's going to be an increasing net positive. Think of it really as what we've already seen at HBO over the years on Video on Demand, which raised the viewing and helped stabilize the [subscriber] base. Same thing with GO.
In the same call, Anthony DiClemente of Barclays asked Bewkes about Apple's entry into the TV space and whether that would cut into Time Warner's margins. Bewkes replied:
Apple's great for Time Warner. It's great for films. It's great for networks. It's great for magazines. ... Basically what happens when you have great interface devices like Apple ... is that you have better opportunities for consumers to read or watch our TV, our movies and our magazines. ... An Apple screen is a television. So if you like your Sony TV at home or your Samsung TV on the wall or your Apple iPad sitting in your lap, they're all televisions, and our shows are all on them. And you can get them all whenever you want for no extra charge.
Time Warner has great content on HBO and it will continue to for the foreseeable future. It embraces these future devices as a means of accessing that content.
Jeff Bewkes is doing it right. Netflix (NFLX) CEO Reed Hastings should take note.