Disney CEO Bob Iger stepping down from the Apple board is a big deal not just because it shows the degree to which Apple is getting into Disney’s business of original content, (making Iger too conflicted to be on an incipient rival’s board), but also because it signals how the content and distribution facets of the media business are converging.

The media biz has always been about frenemies and evolving alliances which makes for tricky navigation even in quiescent times. But the current environment has been particularly marked by turmoil and the appearance of rocky reefs and shifting shoals. Never mind Disney (DIS), just ask the folks at AT&T (T). Even Jack Sparrow would find these waters challenging.

In the case of Disney, the trouble here comes from Apple (AAPL) of course, while with AT&T, a Wall Street firebrand and an old-fashioned carriage skirmish are to blame.

Let’s start with Disney though, and their slow-burn, fall-out with bestie, Apple.

I was noodling on that relationship as my Apple Watch kept defaulting to a Toy Story motif. Annoying but sensical since Toy Story is a Pixar property (a unit of Disney), and Disney and Apple have been practically related since Steve Jobs sold Pixar to Disney for $7.4 billion in 2006. The all-stock deal made Jobs Disney’s largest shareholder and the black-turtlenecked-one took a seat on Disney’s board.

And thus began a cozy relationship between the two companies that extended up to and beyond Steve Jobs’ death in October of 2011 and Iger joining Apple’s board one month later. How cozy? Disney was the first studio to sell TV shows and movies on the iTunes store for instance. Disney revamped its stores to make them look more like Apple’s. And Jobs, Iger and Tim Cook have lavished praise on each other.

Now not so much.

With the announcement of Apple TV+ this week, a streaming subscription service with Apple-produced original movies and TV shows, Apple has planted its flag squarely in Disney’s turf. Producing original programming is not the business of a hardware company, or a software company, or a platform. It’s the business of a media company, a la Disney. But actually it’s even more pointed than that. Debuting on Nov. 1 at $4.99 a month, (and, in an aggressive leveraging of its ecosystem, free for a year if you buy an Apple device) Apple TV+ comes out before and undercuts Disney’s streaming service offering which arrives on Nov. 12 at $6.99.

Disney stock took a hit on the news. Netflix (NFLX) a bit too.

Awkward!

Apple could buy Disney in a heartbeat

Iger acknowledged this discomfort, but had characterized streaming conflicts mostly as a potential problem since it “has not been discussed all that much” by the Apple directors. But that changed. In this flywheel era, and as service becomes more and more important to Apple, one part of the business is increasingly connected to another, it became untenable for Iger to simply recuse himself from specific discussions.

(This is reminiscent of what occurred in 2009 when then Google (GOOG, GOOGL) chairman Eric Schmidt, resigned from the Apple board as the iPhone and Google’s Android became massive competitors. Jobs was explicit about Schmidt: “Unfortunately, as Google enters more of Apple’s core businesses, with Android...Eric’s effectiveness as an Apple Board member will be significantly diminished, since he will have to recuse himself from even larger portions of our meetings due to potential conflicts of interest. Therefore, we have mutually decided that now is the right time for Eric to resign his position on Apple’s Board.”)

Let’s not forget—and not to suggest anything here—but with a trillion dollar market cap, Apple could buy Disney, (worth only $247 billion) in a heartbeat. “We think a big acquisition is on the horizon,” Wedbush analyst Dan Ives says about Apple. A Disney deal would be a big lift. More likely is the winding down of what had been an unusually close, business buddy act.

Not that Apple and Disney will completely disconnect. In the media world, it’s bad business not to do business with everyone.

Speaking of connected, let’s turn to AT&T’s conundrum.

To borrow from that 1990s (Verizon predecessor) NYNEX commercial, and per usual on Planet TMT (telco, media, tech if you must know), ‘we’re all connected.” But if we’re referring to vintage slogans, maybe ‘reach out and touch someone’—that kinda creepy AT&T jingle from the 1980s—would be more apt.

After all, it’s T not VZ that’s being poked sharply in the ribs, in this case via a 23-page missive from the Argentine Agitator itself, Elliott Management, a most-feared activist hedge fund run by billionaire Paul Singer, who’s enamored of conservative politics, LGBT rights and business battles to the death, particularly in the case of the aforementioned South American country which was forced into submission after a decade long fight.

Even before this, it hasn’t been a happy time for AT&T CEO Randall Stephenson, who after acquiring DirecTV and Time Warner for a combined $176 billion and leveraging his balance sheet to the point where it now has the dubious distinction of being the nation’s most levered company outside of the banking sector, has, not-so-shockingly, watched his stock lag not only arch rival (and Yahoo parent company) Verizon (VZ), but also the market writ large by more than a hundred percentage points over the past decade. (Stephenson became CEO in 2007.) Which is why of course Elliott came knocking.

Taking the ‘fr’ out of frenemy

To make matters even more high-profile, the Tweeter-in-chief immediately blasted out his support of Elliott’s campaign (remember POTUS hates AT&T property CNN and tried to block the TWX/T merger), though the president showed restraint by not suggesting that Stephenson should be replaced, by say, John Bolton.

But what might sting Stephenson more than Trump’s tweet, is this little nugget on page five of Elliot’s letter. To wit: “Jeff Bewkes, the CEO who sold Time Warner to AT&T, recently referred to the vertical integration of content and distribution as a “fairly suspect premise.” In other words, Bewkes offloaded his company to Stephenson based on a premise, he is now calling ‘fairly suspect.’

Ouch. That’s taking the ‘fr’ out of frenemy.

The end game in this little drama? Elliott says that if AT&T moves off the dime it “can achieve $60+ per share of value by the end of 2021.” How? It’s pretty clear to me that Elliott wants T to shed itself of DirecTV and Warner, which has jump-started another round of the endless media parlor guessing game. Who buys Warner (which owns the movie studio, HBO and the Turner networks including CNN, TNT, TBS the Cartoon Network.) Netflix? Apple? Softbank (SFTBY)? And then which direction does Direct go? T-Mobile (TMUS)/Sprint (S)?

All this means no rest for the weary, or should I say the investment bankers, who must be licking their chops, particularly the boys and girls over at Morgan Stanley (MS), who made honk-you money first by building TimeWarner into the biggest media company on the planet, then taking it all apart, then selling it to AT&T, and now perhaps (please, please!) selling it off again.

Watch this space as Elliott ramps up the pressure. And bet that this one won’t take 10 years.

Disney is playing offense

And to fully circle the square, and somewhat lost with all the other sturm and drang, Disney is playing offense, (not defense as in the Apple situation) and warned AT&T and DirecTV subscribers—on Monday Night Football of all places—that they may lose access to Disney’s networks including ESPN, ABC and the Disney Channel in a good old fashioned carriage dispute. Not much to know here other than it’s all about the money. But Disney going public like that apparently hurt AT&T’s feelings: "We’re disappointed to see The Walt Disney Co. put their viewers into the middle of negotiations.”

So to sum up: Apple’s rattling Disney’s cage, while Disney is banging on AT&T, which is taking it on the chin from Singer, who’s being cheered on by Trump. Imagine being AT&T and having Singer, Trump and Iger come after you all in the same week.

The damage was minimal though. Netflix stock was up (on a bullish note from Piper Jaffray), so too was AT&T, which makes sense with Elliot pushing and pushing. As for Disney which traded down, betting against Iger has never been a winning strategy.

Longer term, Disney and Apple will go their separate ways. Both of their streaming services may click, (I would bet on Disney), but the market won’t likely support all the offerings from Netflix, Apple, Disney, Hulu, Comcast (CMCSA), Warner, etc. At some point peak content really is a thing. Look for consolidation or shutdowns. As for AT&T, at some point it will likely be broken up.

Bottom line, despite the treacherous market, these are pretty good businesses—AT&T’s debt notwithstanding. I wouldn’t worry about sinking ships.

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer.

This article was featured in a special Saturday edition of the Morning Brief on September 14, 2019. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

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