It started with a whisper, not long after Apple previewed its on-line digital music service with industry insiders in December, a whisper that gradually became a shout. Apple was said to be considering a $6-billion (U.S.) takeover bid for Universal Music, which parent Vivendi Universal had put up for sale. The two most common reactions to this were: a) That would be really cool; and b) Has Steve Jobs gone insane?
According to the various versions of the story that have emerged over the past few days – since the Los Angeles Times broke the story on Friday, April 11 - the Apple co-founder may not have lost his mind at all, or he may only have lost part of it, or he may have gone completely bonkers. Then there are those who feel buying Universal Music is just the kind of crazy thing Steve Jobs and Apple might be able to pull off.
According to the L.A. Times story, Vivendi approached the Apple CEO about a deal shortly after seeing a demo of Apple’s on-line music service, which is scheduled to make its debut some time this summer. The Vivendi execs were reportedly “impressed by the service and Jobs’ vision of music’s future,” and proposed that he buy a minority stake in the entertainment conglomerate’s music division. (Other reports say Microsoft and Intel have also been approached by the company).
At some point, the L.A. Times said, talks between Vivendi and Apple began to broaden in scope, with Mr. Jobs meeting top Vivendi executives several times. The computer company eventually became interested in the idea of buying the entire record label for as much as $6-billion, according to the newspaper, and went so far as to hire Morgan Stanley to go over the company’s operations and come up with advice.
Since then, several stories have downplayed the idea. The New York Times quoted sources as saying that Apple was discussing such a deal “but not too seriously” – if it’s possible to have a not-very-serious chat about paying $6-billion for the world’s largest music company. Could this waning interest have anything to do with the fact that Apple’s share price sank by almost 10 per cent after the news came out? Perhaps.
Whether buying Universal would be crazy or not depends on whom you ask. One Apple insider told The New York Times that buying Universal made no sense – since the company’s new music service will offer music from all the major labels. “Why buy the cow when you already have the milk?” the Apple executive asked. Owning a label might also make the other labels less happy about supplying Apple’s new service.
Needham & Co. analyst Charles Wolfe said such a purchase “does not play to [Apple’s] competitive advantages,” since they are “not in the content business and they know nothing about it.” There are a couple of other concrete reasons why a deal seems ludicrous: for one thing, Apple has lost money in the past two quarters in a row, and while it has more than $4-billion in cash on hand, it seems a little absurd to spend all that and more getting into a business you don’t even understand.
The music industry isn’t exactly burning up the profit charts either. Universal Music’s operating profits fell by almost 25 per cent last year, due in part to the wrenching transformation that it and the other major music labels – Sony, Time Warner, BMG and EMI – are currently dealing with, from traditional CD sales to digital delivery. Although the labels have started their own music services, called MusicNet and Pressplay, they have yet to draw much of a user base, while CD sales continue to slide.
Ironically, the pathetic nature of the two official music services may be one of the only arguments in favour of Apple buying Universal. A company as tuned into the desires of its customers as Apple has shown itself to be could do a lot to help make digital music delivery – that is, legal music delivery – as easy and attractive as it needs to be, and should be. Vivendi officials were said to be impressed with how simple the Apple music service made the process of paying for and downloading music.
The sad thing, of course, is that the two official music services could easily provide the same thing, if they wanted to. What consumers want isn’t rocket science: they want the ability to buy the songs they want for a relatively small amount of money, and to have the full use of those songs in whatever format they wish. They don’t want to pay more than they would for a CD to get songs that can’t be moved or copied, or that stop working when a user stops paying monthly rent to the record company.
From that point of view, having Apple buy Universal – even if it is crazy – could be a good thing, since it might be able to do what no one seems to have been able to do thus far: create a digital music service that is actually a pleasure to use, and provides some value. That would be worth something.
E-mail Mathew Ingram at mingram@globeandmail.ca
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