I would love to see this happen, if only to free up the back catalog of music. Anyone care to venture a guess (Matsu?) as to why something like this would fail?
What prevents Apple now from making a very successful distribution system? Apple does not need to own a music company to succeed. They just need to convince one company to take big time advantage of it. As you say, once the others see the success, they will be eager to get on board. If Apple is neutral, and not a competitor, they are much more likely to go with Apple.
Whenever you are about to offer a Whole New Way of Doing Things, you're offering a risky proposition. If you have a bunch of companies you're pitching the WNWoDT to, they might all think it's a great idea, and they might all be waiting for someone else to commit first. So nothing happens.
Apple might be at this juncture with the music companies: They'd all love to see this work, but they want to make sure it works before they jump in. The record companies are skeptical and jumpy around downloadable music services. Remember, these are the same companies that fought bitterly against listening booths in record stores, even though, unlike Napster, they simply can't be used for piracy. Their current system is driven by album sales, marketing, retail presence and radio play. Downloads are this unproven thing with economics that simply don't mesh with the model they've built their entire industry around. Not to mention the fact that "online business" is a much harder sell after the dot-bomb.
So, let's say that Steve is at an impasse like this, where everyone wants to be the second person to hop on board. Now, as it happens, Vivendi is reeling from a decade or so of abysmal management, and they're putting the world's largest label on the auction block. Steve looks at this, and realizes that Apple itself could be the first person on board. That, to borrow a phrase, they're willing to eat their own dog food. I can see how this would be tempting.
There are a lot of possible obstacles, and a lot of risks. Sony bought Columbia expecting a similar synergy, and what they got was a completely different culture that felt threatened by the rest of Sony, specifically the home entertainment and personal computer divisions. This could easily happen to Apple, and if it did the only cure would be for Steve to go on a bloody rampage until the offending bits of the company were either forced out or cowed. Fortunately, Steve can do that. Unfortunately, it wouldn't be pretty.
There is also the possibility that while the other record companies would be glad to see someone else take the risks, they'd look askance at depending on the service offered by their biggest competitor. If the service really takes off, they might be able to overcome that. If Steve doesn't force them to make exclusive commitments (and with Apple's market share, how could he?) they might not mind so much.
It's certainly more interesting than the Disney/Apple acquisition rumors.
About the Sony Music vs. Sony Electronics "thing"... how was that playing out? Was the music division for airtight DRM and the consumer electronics division in favor of less restrictions? Or did I reverse that?
Sony belongs to the RIAA; Sony also sells CD burners.
Well that says it right there!
Quote:
And a decisive move by Sony toward a new music business model could transform its industry, Fader adds. "They could do so overnight. They're big and strong enough that the others in the industry would moan and grumble for a moment, but they'd jump on board and the industry would soar. It's hardware and software: The easier you make it to get or use one, the more profit you can pull out of the other one."
I would put a lot of faith in Todd's assessment since he's an actual economist.
Thanks for the vote of confidence, but its not really an economic assessment but more of a financial one. The cash has been sitting there forever, its about time they do something with it.
There is also the possibility that while the other record companies would be glad to see someone else take the risks, they'd look askance at depending on the service offered by their biggest competitor. If the service really takes off, they might be able to overcome that. If Steve doesn't force them to make exclusive commitments (and with Apple's market share, how could he?) they might not mind so much.
I think the crucial issue there would be whether Jobs could demonstrate that Apple/Vivendi content wouldn't receive any preferential treatment or promotion, and I don't think that would be a problem. From what we've heard of this music service so far, it would operate pretty transparently to the user: you do a search in iTunes (or whatever Windows equivalent), get back your results, and download/buy as you like. No one would have to know or care what label sold you a song. The burden, such as it is, would more likely fall on the labels themselves, as they would have to provide the content according to Apple's spec. But I don't see Apple doing an MS/AOL approach, where you're bombarded with ads for a favored vendor's product at all stages of the process.
The labels *are* capable of working together if they all ultimately benefit (or if they think they do, as we've seen over the past few years). Having competing formats for pay-for downloads might help a few insecure execs feel a little safer but it would also retard the technology's acceptance in the marketplace, and skittish consumers mean fewer sales.
The analogies we've been seeing to AOL/TW don't really hold water and nor does the Sony/Columbia one.
AOL/TW:
I've seen ads on tv for AOL's broadband service touting, of all things, downloading music. It makes me laugh to think that the TW branch is fighting that. Cutting off its nose to spite its face.
Sony/Columbia:
Sony doesn't make software. They have no control over what actually goes into software music players. They have no content delivery aparatus anywhere near ready for implementation.
Apple, on the other hand, has all of that. Heck, they've even got shares in Akamai that could stand to benefit if the bandwidth demands are strong enough. I'm thinking that this could be a good thing... maybe.
Apple would definitely betting the whole farm on this and that makes me a little wary. But the music industry needs innovation as badly as the computer industry and Apple's the only company willing to take risks (or so it seems). This forum just got a whole lot more interesting.
"...DRM-free Mac then zip it right over to your iPod. "
Dream on. If there's a standard for DRM, and there has to be at some point, then it's more likely to be adopted by Apple than it is by MS (because Apple can't risk not having that content where MS probably can define what they like).
Wow. This is the "funest" rumor in awhile. Now I haven't read my Apple 10-K's in awhile, so I don't really know how capable Apple would be at pulling this off. I would hope that Apple keep at least 500 million in the bank as "insurance" and use a 1/2 cash, 1/2 stock deal. As The Register notes, Pixar's movie distribution contract could also help enhance the deal. Personaly I would like Apple to aquire a controlling stake in the whole Universal group minus the Theme Parks. The movie group could be (with the advent of deep, deep, personal data pipes) integrated into this "digital euphoria" strategy, and the Universal Interactive division will be a nice addition to Apple's software arm. Switching of my "freakin' awesome" factor, the deal worries me a great deal. Spending six billion be it cash or stock is a huge proposition. If the Music Industry continues to tank, and piracy can't be controlled Apple will be in a world of hurt; this deal comes in when Apple's business is in a decline, not having that nice cash stash will hurt. The rewards are great too: Apple becomes a major player within the entertainment industry, the music sharing service takes off causing a huge cash influx into Apple, even if it fails $500 million a year is nothing to scoff at. Some of the negatives will be M$ jumping on the bandwagon and challenging Apple, Sony will try and stifle Apple, and the new music service deals could be jeopardized.
-I apologize for the haphazard post, but I have to run. Maybe I'll edit later.
The annual Apple shareholders meeting is going to be held on April 24. If Apple plans to by Universal they will surely mention this then. I guess we will have to wait two weeks to find out if this is actually going to happen.
Remember Sony bought Columbia to push the CD as the next standard and was sucessful(at least initially). Apple can buy Universal to push ACC as the next big thing in music distribution and hopefully be sucessful also.
No, but the fact that it's probably going to fall apart will.
No one knows one way or another if it will work or not. Being that I work for one of the majors it is seen as a very high possibility that it will happen if the finances can be sorted out. Do not underestimate Fred Anderson.
Dream on. If there's a standard for DRM, and there has to be at some point, then it's more likely to be adopted by Apple than it is by MS (because Apple can't risk not having that content where MS probably can define what they like).
Clive,
I guess my point was that I currently trust Apple to Do The Right Thing when it comes to DRM.
Instead of, like MS typically does with such things, going their own way with DRM, they'll likely go with a standard everyone can agree on. That standard would also be, if Apple history holds up, non-detrimental to the user.
Look at Rip.Mix.Burn. Apple is saying "We trust the user," instead of the industries knee-jerk panic attack of "Apple is promoting piracy! Whaaaaaa!"
Now, who knows what attitude Apple would take if they acquired Universal? But, for now, I'm willling to show a little trust.
AOL didn't pay a dime when they bought Time Warner - they paid $160 billion in an all-stock deal.
It depends on market conditions. If the market sees this buy out as a good thing, the stock price can rise and make it attractive. If it depresses stock prices, then it takes many more shares for the purchase. Then you must consider what the issuing of more stock will do to the price. If confidence is not high in this venture, the stock can take a serious hit. If the seller is concerned about the stock losing value too, this will also affect the selling price.
So it is not all that simple, and right now Apple stock is low anyway. I would expect this to be mostly a cash deal.
What I would be more interested to know, is if Apple would lower the cost of CDs or bet the farm on their new music service and keep CDs were they are at.
Universal Music owns the following companies:
Interscope
Geffen
A&M
Island
Def Jam Music Group
Lost Highway Records
MCA Nashville
MCA Records
Mercury Nashville
Universal Classics
Universal Motown Records
Universal Music Enterprises
Verve Music Group
Amazing that Apple would own all of them. I am sure Microsoft would be steaming and try to buy out Warner Brothers music...oh oops AOL already owns that one Microsoft
If they make a bid it will be cash mostly or perhaps entirely, with the extra needed cash coming from Apple issued bonds. Apple is a big company with no debt. A little debt won't kill them- but it would require some steady profits to pay off.
Well, Apple can moot some of the reasons why the music industry isn't doing well.
1) Radio is basically an extortion racket at this point. Apple's service moots the indies and Clear Channel alike.
2) The current production, marketing and distribution methods scale down poorly, making it difficult to support back catalogs and low- to medium- selling records (meaning, half a million copies or less). This results in reduced sales. A music download service amounts to a particularly inexpensive, searchable print-on-demand, allowing the labels to issue (and reissue) more titles that would otherwise stay in the vaults. The savings in cost results in a gain in sales.
3) The same machinery above is damned expensive. By cutting out a lot of the costs, the industry can offer a lower price while preserving (most of) their profit. More sales again, especially since a lot of people grumble about CD prices now.
The industry's main issue will be fear of copying. Again, this is the same industry that predicted that the cassette tape would throw them all into bankruptcy. Despite the fact that it didn't; and despite the fact that there is a near-linear correlation between how enthusiastically an album is traded and how well it sells; and despite the fact that although CD sales were down 13%, that might have had something to do with the fact that the number of releases was down 25%, or with the fact that you can sometimes buy the DVD of a movie for $1 more than the CD of its soundtrack, or with increased pressure from the burgeoning video game market; despite this, the labels continue to be governed by abject terror of both previewing and copying. Apple appears to have some sort of DRM in place, which we can only hope is unintrusive, and that like the iPod's "copy protection" it adheres to the philosophy that locks exist to keep honest people honest, rather than the sort of absolute control favored by the likes of Microsoft. If it's too troublesome and too inflexible, consumers won't buy in.
Also, there are some issues that this won't fix, such as the quality of the releases that the labels are churning out in the first place...
Wouldn't this infringe on their agreement with Apple Records?
I've been wondering about that too. I'm sure something could be worked out though, since UMG probably wouldn't change names. The iPod is already in 'music' territory and it didn't infringe so I'm hopeful.
Wouldn't this infringe on their agreement with Apple Records?
Apple threw a whole bunch of settlement money at them a few years ago to shut them up so that they could release CoreAudio and buy Logic. I don't think we'll hear from them any more.
Cash and stock are not the only ways to buy a company. Generally, with big mergers like this one, a good chunk of the selling price is actually the assumption of debt. Don't freak out hearing that word; corporate debt isn't exactly the same thing as the debt you have on your credit card. You've heard of corporate bonds? That's what we're talking about here. Apple is actually quite unique among its peers in that it lacks any long-term debt.
Vivendi Universal currenlty has about $20 billion in gross debt as a company. Who knows what portion of that can be attributed to UMG; their publicly available financial statements don't break out that figure. So, let's say Apple is willing to pony up $3 billion of its $4-5 billion in cash for this purchase. If the rumored price is $6 billion, maybe they assume $3 billion in debt.
Coincidentally, UMG has about $6 billion in annual revenue (slightly greater than that of Apple in recent years) and has an annual operating profit of over $500 million. If the anti-debt sentiment at Apple holds, they could pay down the assumed debt within six years, just from UMG profits.
From a purely financial standpoint, there's no reason this deal couldn't work. From the standpoint of a long-time Mac user, I just wonder what's going to happen to my computer once Jobs starts focusing more on the new Eminem album and less on the next iBook.
Comments
Originally posted by snoopy
What prevents Apple now from making a very successful distribution system? Apple does not need to own a music company to succeed. They just need to convince one company to take big time advantage of it. As you say, once the others see the success, they will be eager to get on board. If Apple is neutral, and not a competitor, they are much more likely to go with Apple.
Whenever you are about to offer a Whole New Way of Doing Things, you're offering a risky proposition. If you have a bunch of companies you're pitching the WNWoDT to, they might all think it's a great idea, and they might all be waiting for someone else to commit first. So nothing happens.
Apple might be at this juncture with the music companies: They'd all love to see this work, but they want to make sure it works before they jump in. The record companies are skeptical and jumpy around downloadable music services. Remember, these are the same companies that fought bitterly against listening booths in record stores, even though, unlike Napster, they simply can't be used for piracy. Their current system is driven by album sales, marketing, retail presence and radio play. Downloads are this unproven thing with economics that simply don't mesh with the model they've built their entire industry around. Not to mention the fact that "online business" is a much harder sell after the dot-bomb.
So, let's say that Steve is at an impasse like this, where everyone wants to be the second person to hop on board. Now, as it happens, Vivendi is reeling from a decade or so of abysmal management, and they're putting the world's largest label on the auction block. Steve looks at this, and realizes that Apple itself could be the first person on board. That, to borrow a phrase, they're willing to eat their own dog food. I can see how this would be tempting.
There are a lot of possible obstacles, and a lot of risks. Sony bought Columbia expecting a similar synergy, and what they got was a completely different culture that felt threatened by the rest of Sony, specifically the home entertainment and personal computer divisions. This could easily happen to Apple, and if it did the only cure would be for Steve to go on a bloody rampage until the offending bits of the company were either forced out or cowed. Fortunately, Steve can do that. Unfortunately, it wouldn't be pretty.
There is also the possibility that while the other record companies would be glad to see someone else take the risks, they'd look askance at depending on the service offered by their biggest competitor. If the service really takes off, they might be able to overcome that. If Steve doesn't force them to make exclusive commitments (and with Apple's market share, how could he?) they might not mind so much.
It's certainly more interesting than the Disney/Apple acquisition rumors.
plus, anyone who can use the word "askance" in a post is cool by my book.
p.s. have i mentioned how ludicrously fast the AI boards are now compared to the "good ol' days"? edits and posts are nearly instantaneous for me.
BTW, Vivendi owns:
MP3.com
MP4.com
EMusic.com
GetMusic.com
RollingStone.com ...and others...
Talk about becoming a content provider.
Screed
Ah, found something: Sony: The conflicted conglomerate
Sony belongs to the RIAA; Sony also sells CD burners.
Well that says it right there!
And a decisive move by Sony toward a new music business model could transform its industry, Fader adds. "They could do so overnight. They're big and strong enough that the others in the industry would moan and grumble for a moment, but they'd jump on board and the industry would soar. It's hardware and software: The easier you make it to get or use one, the more profit you can pull out of the other one."
Originally posted by ShawnPatrickJoyce
I would put a lot of faith in Todd's assessment since he's an actual economist.
Thanks for the vote of confidence, but its not really an economic assessment but more of a financial one. The cash has been sitting there forever, its about time they do something with it.
My Webpage
Originally posted by Amorph
There is also the possibility that while the other record companies would be glad to see someone else take the risks, they'd look askance at depending on the service offered by their biggest competitor. If the service really takes off, they might be able to overcome that. If Steve doesn't force them to make exclusive commitments (and with Apple's market share, how could he?) they might not mind so much.
I think the crucial issue there would be whether Jobs could demonstrate that Apple/Vivendi content wouldn't receive any preferential treatment or promotion, and I don't think that would be a problem. From what we've heard of this music service so far, it would operate pretty transparently to the user: you do a search in iTunes (or whatever Windows equivalent), get back your results, and download/buy as you like. No one would have to know or care what label sold you a song. The burden, such as it is, would more likely fall on the labels themselves, as they would have to provide the content according to Apple's spec. But I don't see Apple doing an MS/AOL approach, where you're bombarded with ads for a favored vendor's product at all stages of the process.
The labels *are* capable of working together if they all ultimately benefit (or if they think they do, as we've seen over the past few years). Having competing formats for pay-for downloads might help a few insecure execs feel a little safer but it would also retard the technology's acceptance in the marketplace, and skittish consumers mean fewer sales.
Aw heck ... a fellow can dream, can't he?
AOL/TW:
I've seen ads on tv for AOL's broadband service touting, of all things, downloading music.
Sony/Columbia:
Sony doesn't make software. They have no control over what actually goes into software music players. They have no content delivery aparatus anywhere near ready for implementation.
Apple, on the other hand, has all of that. Heck, they've even got shares in Akamai that could stand to benefit if the bandwidth demands are strong enough. I'm thinking that this could be a good thing... maybe.
Apple would definitely betting the whole farm on this and that makes me a little wary. But the music industry needs innovation as badly as the computer industry and Apple's the only company willing to take risks (or so it seems). This forum just got a whole lot more interesting.
Originally posted by rentedmule
"...DRM-free Mac then zip it right over to your iPod. "
Dream on. If there's a standard for DRM, and there has to be at some point, then it's more likely to be adopted by Apple than it is by MS (because Apple can't risk not having that content where MS probably can define what they like).
-I apologize for the haphazard post, but I have to run. Maybe I'll edit later.
Remember Sony bought Columbia to push the CD as the next standard and was sucessful(at least initially). Apple can buy Universal to push ACC as the next big thing in music distribution and hopefully be sucessful also.
Originally posted by Matsu
No, but the fact that it's probably going to fall apart will.
No one knows one way or another if it will work or not. Being that I work for one of the majors it is seen as a very high possibility that it will happen if the finances can be sorted out. Do not underestimate Fred Anderson.
Originally posted by Clive
Dream on. If there's a standard for DRM, and there has to be at some point, then it's more likely to be adopted by Apple than it is by MS (because Apple can't risk not having that content where MS probably can define what they like).
Clive,
I guess my point was that I currently trust Apple to Do The Right Thing when it comes to DRM.
Instead of, like MS typically does with such things, going their own way with DRM, they'll likely go with a standard everyone can agree on. That standard would also be, if Apple history holds up, non-detrimental to the user.
Look at Rip.Mix.Burn. Apple is saying "We trust the user," instead of the industries knee-jerk panic attack of "Apple is promoting piracy! Whaaaaaa!"
Now, who knows what attitude Apple would take if they acquired Universal? But, for now, I'm willling to show a little trust.
Originally posted by JLL
No, you usually don't pay it all in cash.
AOL didn't pay a dime when they bought Time Warner - they paid $160 billion in an all-stock deal.
It depends on market conditions. If the market sees this buy out as a good thing, the stock price can rise and make it attractive. If it depresses stock prices, then it takes many more shares for the purchase. Then you must consider what the issuing of more stock will do to the price. If confidence is not high in this venture, the stock can take a serious hit. If the seller is concerned about the stock losing value too, this will also affect the selling price.
So it is not all that simple, and right now Apple stock is low anyway. I would expect this to be mostly a cash deal.
Universal Music owns the following companies:
Interscope
Geffen
A&M
Island
Def Jam Music Group
Lost Highway Records
MCA Nashville
MCA Records
Mercury Nashville
Universal Classics
Universal Motown Records
Universal Music Enterprises
Verve Music Group
Amazing that Apple would own all of them. I am sure Microsoft would be steaming and try to buy out Warner Brothers music...oh oops AOL already owns that one Microsoft
1) Radio is basically an extortion racket at this point. Apple's service moots the indies and Clear Channel alike.
2) The current production, marketing and distribution methods scale down poorly, making it difficult to support back catalogs and low- to medium- selling records (meaning, half a million copies or less). This results in reduced sales. A music download service amounts to a particularly inexpensive, searchable print-on-demand, allowing the labels to issue (and reissue) more titles that would otherwise stay in the vaults. The savings in cost results in a gain in sales.
3) The same machinery above is damned expensive. By cutting out a lot of the costs, the industry can offer a lower price while preserving (most of) their profit. More sales again, especially since a lot of people grumble about CD prices now.
The industry's main issue will be fear of copying. Again, this is the same industry that predicted that the cassette tape would throw them all into bankruptcy. Despite the fact that it didn't; and despite the fact that there is a near-linear correlation between how enthusiastically an album is traded and how well it sells; and despite the fact that although CD sales were down 13%, that might have had something to do with the fact that the number of releases was down 25%, or with the fact that you can sometimes buy the DVD of a movie for $1 more than the CD of its soundtrack, or with increased pressure from the burgeoning video game market; despite this, the labels continue to be governed by abject terror of both previewing and copying. Apple appears to have some sort of DRM in place, which we can only hope is unintrusive, and that like the iPod's "copy protection" it adheres to the philosophy that locks exist to keep honest people honest, rather than the sort of absolute control favored by the likes of Microsoft. If it's too troublesome and too inflexible, consumers won't buy in.
Also, there are some issues that this won't fix, such as the quality of the releases that the labels are churning out in the first place...
Originally posted by Ringo
Wouldn't this infringe on their agreement with Apple Records?
I've been wondering about that too. I'm sure something could be worked out though, since UMG probably wouldn't change names. The iPod is already in 'music' territory and it didn't infringe so I'm hopeful.
Originally posted by Ringo
Wouldn't this infringe on their agreement with Apple Records?
Apple threw a whole bunch of settlement money at them a few years ago to shut them up so that they could release CoreAudio and buy Logic. I don't think we'll hear from them any more.
Unless, of course, Apple buys Apple Records.
Vivendi Universal currenlty has about $20 billion in gross debt as a company. Who knows what portion of that can be attributed to UMG; their publicly available financial statements don't break out that figure. So, let's say Apple is willing to pony up $3 billion of its $4-5 billion in cash for this purchase. If the rumored price is $6 billion, maybe they assume $3 billion in debt.
Coincidentally, UMG has about $6 billion in annual revenue (slightly greater than that of Apple in recent years) and has an annual operating profit of over $500 million. If the anti-debt sentiment at Apple holds, they could pay down the assumed debt within six years, just from UMG profits.
From a purely financial standpoint, there's no reason this deal couldn't work. From the standpoint of a long-time Mac user, I just wonder what's going to happen to my computer once Jobs starts focusing more on the new Eminem album and less on the next iBook.