Apple and Universal: Sweet Music
ANALYSIS I'm a bit surprised investors have hammered Apple's stock over rumors the Mac maker might be in talks to buy Universal Music. Wall Street analysts aren't exactly brimming over with enthusiasm either.
In a research note earlier on Friday, Merrill Lynch analyst Michael Hillmeyer concluded, "The purchase of a major music company such as Universal would not make strategic sense for Apple."
I've been pretty sour on Apple recently, but I think Wall Street is shortsighted here; somebody's not seeing the trees for the crops.
Apple buying Universal would be a brilliant move, one that could effectively hamper Microsoft's attempts to dominate digital media the way it does Web technologies. Such action would ensure Apple's viability as a computer manufacturer and open up brand new revenue opportunities for the company.
The situation is this: Both Apple and Microsoft recognize that digital media is driving the next wave of computer sales. Apple's approach has been to build high-quality digital media products and to champion open standards, such as MPEG-4.
Microsoft has been working the partnerships--similar to the strategy used to route Netscape during the so-called browser wars--to spread its technology. Microsoft hopes to establish its Windows Media Format as the defacto standard for digital music and video; thus, allowing the company to dominate digital media the way it does the desktop productivity software market.
Through the control of file formats, Microsoft ensures that people will buy Office whether they really want to or not. Compatibility counts. Dominance of WMF would put Windows at the center of the digital media-driven round of computer sales and ensure sales of ancillary products like Windows Server 2003.
Apple buying Universal would throw a serrated-edge wrench into the Microsoft digital media machine. Apple could keep Universal's vast music catalog from being usurped to WMF and instead promote MPEG-4. The timing would be pivotal, since other music labels are leery of Microsoft courtships. The labels, which are uncertain about how to deal with online music file trading, have resisted Microsoft's offered free use of its digital rights management technology. That DRM is tied to WMF; you can't get one without the other.
Apple could take a leadership role that could help the already hesitant music labels find another way, which could be crucial to finding a successful online music distribution business model built around technology, like MPEG-4, that is not controlled by one single company. Here, Apple CEO Steve Jobs' reputation as a visionary leader could be instrumental (pardon the pun) in what camp the music labels play.
At the same time, Macs are entrenched in Hollywood for television show and movie production. With Universal as anchor to shift music labels to open technology standards, Apple could potentially solidify its presence in Hollywood--another market Microsoft would really like to see move to WMF.
Universal's catalog and the strategic advantages gained from the purchase could help ensure Macs have a place in the ongoing digital media revolution. Already, the Mac is in many ways a superior platform to Windows when it comes to getting the most out of digital media.
Apple's iTunes 3 digital music software and iPod portable music player would make a superb basis for the company's long-rumored online music service. That could be served up through Apple's .Mac online suite of services from Universal's vast catalog, bolstering Apple's subscription revenues.
Apple would also be able to leverage other hardware and service sales through Universal's music library. Microsoft, by contrast, would likely face serious antitrust scrutiny should the company ever try to add content to its technology portfolio. So Apple can plant seeds where Microsoft can't, use those seeds to grow a new crop and at the same time protect its current harvest from a digital media blight.
Joe Wilcox has been covering technology since 1994 and now spends his days writing about Microsoft for CNET News.com. More rants and raves from Joe can be found online at joewilcox.com.