The Practical Mac

Apple Should Buy Universal - or Not

- 2003.04.23 - Tip Jar

All the buzz recently has been about Apple's possibly purchasing Universal Music from troubled French conglomerate Vivendi-Universal. This would be a wise and prudent investment for Apple.

Or maybe not.

This issue has divided the Mac community as well as the investment world - and with good reason. Without the benefit of a crystal ball, or at least a Magic 8-Ball, no one has a clue how the deal might turn out.

On the positive side, Apple would acquire the largest music company in the world. There is no dispute this would be a big boost to the digital hub. By controlling a company like Universal, Apple would have a lot to say about the future of the music industry, including the future of music delivery, a subject in which the company most definitely has a vested interest.

Most music companies have been cool to the idea of electronic delivery. Apple could change that with the stroke of a pen (that stroke being the signing of Fred Anderson's name to a very large check).

Apple may also find a willing partner in industry giant Bertelsman (BMG), who already indicated their willingness to explore opportunities in this area by their association with the now-defunct Napster. And Apple could most likely do this by using cash on hand, without incurring any significant debt.

On the other hand, the music industry has been in a freefall for the past three years, and Apple could wind up owning a pig in a poke. Instead of leading the way into the digital future, Apple could be stuck with a non-performing company that sucks away the profits of the computer side of the business.

The purchase would exhaust Apple's cash reserves, making it less able to withstand any downturn in its core computer business.

Music industry executives blame their flagging fortunes on music piracy. I personally think it has more to do with Britney Spears, but at any rate something is wrong, and no one has a good plan to fix it.

But Steve Jobs might.

Instead of embracing technology as a new avenue for delivering their product, the music industry has attempted to stifle it. This is a battle the music industry can never win.

Steve Jobs, who has a lot more vision than your typical suit-and-tie CEO, most likely knows this. Steve has an unique way of forming unusual alliances for the benefit of Apple. Six years ago, he convinced Bill Gates to have Microsoft invest millions of dollars in Apple, thus rescuing the company from an uncertain financial future and possible bankruptcy.

Microsoft recently divested itself of all its shares of Apple stock. Microsoft tried to spin this to their advantage, but the truth is that when Microsoft sold its shares of Apple, that effectively meant that six years ago, Apple got $200 million of free money from its arch rival. Eat your heart out, Jack Welch. That's real business savvy.

I suspect that Jobs has something up his sleeve. While there are inarguably Internet pirates who will continue to steal music regardless of what happens, there are also a lot of people who really do use LimeWire, Gnutella, and a myriad of other peer-to-peer services because they truly are easy to use.

Most of these people would gladly pay something for the convenience of downloading music legally. The problem is, no one has ever given them a chance. Apple might be willing to do that.

I dare not hazard a guess as to what Apple will do. Buying Universal would be a gamble. If they do the deal and it flops, Apple could be worse off than it has ever been. However, if it works, Apple could easily find itself riding a tidal wave that swamps the competition.

I support whatever decision Apple makes. And, for the first time in my life, I'm glad I'm not the one who has to make that decision.

As a follow-up to my recent review of the iRock, I wanted to bring to your attention a similar device by the same manufacturer available through Small Dog Electronics for about half the price.
I have been out of town for the last couple of weeks and will be for at least another week. During this time, I have very limited access to email. As a result, I have not been able to answer most of my email.

Keep those letters coming, though. Be assured that I am not ignoring you; I promise to catch up when I get home. LEM

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Steve Watkins is the Vice President for Information Technology for a mid-sized bank, an attorney, and an Army Reserve JAG on extended active duty. He has been a Mac user for about 12 years. He has owned some PCs along the way - but always came back to the Mac. If you find his articles helpful, please consider making a donation to his tip jar.

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