Apple as future of digital music?

Steve Jobs in talks to buy Vivendi Universal record company

An article in The Los Angeles Times was enough to prompt a downfall of Apple stocks last week. The newspaper reported that the Cupertino company was in talks to buy the music division of Vivendi Universal for as much as $6 billion.
Quoting well-informed sources, The Los Angeles Times - following up on a story about Apple preparing to release a for-fee music service - claimed that Steve Jobs would be prepared to offer $5-6 billion for the purchase of Universal Music, an adequate figure but much less than what Vivendi had spent.
A record label acquisition would radically transform Apple from a computer maker into a company with hardware and music operations of similar sizes. It is still unclear where Apple would find the money, since its liquidity resources amount to some $4.5 billion and an exchange of stock is out of the question (Vivendi needs to sell a few family jewels in order to survive). According to the newspaper, Vivendi took the initiative to contact Apple as far back as last December, soon after a demo of the soon-to-be-launched system from Jobs' company was offered to the major record labels.
Universal Music, with a 23 percent share of the market, is one of the foremost, if not the biggest, record companies in the world. The Universal trademark covers some true icons of yesterday and today such as Abba, Chuck Berry, James Brown, Eric Clapton, Patsy Cline, Jimi Hendrix, Bob Marley, Nirvana, The Who, Limp Bizkit, Beck, Blink-182, Bowie, No Doubt, Sheryl Crow, Elton John, S Club 7, U2, Sting, Mariah Carrey, Marilyn Manson, Diana Ross, Pavarotti, and Andrea Bocelli.
Representatives of both Apple and Universal Music Group declined to comment but the fear from Apple investors on this move sent the company stock down about 8 percent.
Some analysts questioned whether it makes sense for Apple to purchase a record label at a time when media and the Net are transforming key label functions such as talent searches, promotions and distribution.
Should the news item prove correct, this would be evidence of Apple's intentions to pursue aggressively the market of digital entertainment. The scenarios that would be created with Apple in control of one of the major record labels are unexplored, but the choices of the last few months come to mind, recalling the launch and strengthening of the strategies on the iPod and musical audio software.
What some investors most fear is the less than rosy situation of the world market.
Worldwide sales of music CDs, records and cassettes fell for the third year in a row last year, with a 7 percent drop in global music sales and a 10 percent fall in units sold in the United States, according to figures for 2002 released last week by the International Federation of the Phonographic Industry (IFPI). This could entail, for Apple or anyone else intending to buy Universal, the need to block a likely money haemorrhage, just as Vivendi is doing now.
Apple may not have come up with a business model that sits between the tight control imposed by the music industry's online efforts and the MP3 sharing free-for-all. It must be remembered that the company is probably keener simply on finding ways to generate revenue from its established customer base or attracting new users, and to ensure that Macs aren't frozen out by the numerous online music services that only support Windows.
In an era when Microsoft is trying with all its strength to convince record companies and studios to use exclusively its proprietary Windows Media Player format, this possible entry could even be read as a pre-emptive defence.
Anyway, the question should be whether the arrival of a different technology and possibly philosophy could somehow patch the losses suffered by the musical world. According to record companies, everything should be blamed on musical piracy, boosted by the Internet.
This arrival of technological companies onto the music scene is nothing new, as several years ago Sony bought CBS Records; however, the philosophy of the Japanese giant, pitting every division against every other, looks like a less than ideal solution.
Maybe a charismatic figure like Jobs could embody the missing link that could lead digital music into the new millennium. There's plenty of risk in this, but the master and commander of Apple is probably aware it.

Publication Date: 2003-04-20
Story Location: http://tandemnews.com/viewstory.php?storyid=2638