Yet More Vivendi News

[Digger]

Report: Apple May Buy Universal for $6B

LOS ANGELES (AP) - Apple Computer Inc. is in discussions about buying Universal Music Group, the world's largest record company, for as much as $6 billion, according to a published report Friday.

Talks between Apple and Vivendi Universal, Universal Music Group's parent company, have been held secretly for months, the Los Angeles Times reported.

Apple may offer $5 billion to $6 billion for the music company before Vivendi's April 29 board meeting, the newspaper said, citing sources it did not identify.

When reached by the newspaper, representatives for both Apple and Vivendi declined to comment about the possible deal.

Vivendi has been trying to sell some of its assets and raise about $7 billion this year after barely staving off bankruptcy in 2002 as it struggled to cope with billions of debt, a collapsing share price and boardroom infighting. Top executives such as Barry Diller and former chairman Jean-Marie Messier have departed within the last year.

Investor Marvin Davis has offered about $13 billion for 65 percent of the entertainment assets and has been the only known bidder to express serious interest in the music company. A separate sale of the music operation would appear to work in favor of Liberty Media Corp. and others that are focused on the company's other entertainment properties.

Apple, which has annual sales of about $5.7 billion, owns less than 3 percent of the desktop computing market but has indicated that supplying music to customers may be its future.

The Cupertino, Calif.-based company has been testing a service that allows users to buy and download digital music for their computers. The service is expected to debut by the end of April.

Universal reaps about $6 billion in sales annually from artists such as 50 Cent, Shania Twain and U2, but has seen operating profits slide 23 percent last year. It accounts for about 25 percent of all CD sales and has such top labels as Interscope and Def Jam.

Vivendi first approached Apple CEO Steve Jobs in December, not long after its music executives visited Apple's headquarters to view a demonstration of Apple's new digital service, sources told the Times.

04/11/2003
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It's hard to say what this would mean for the possible sale of SciFi and USA Networks if Apple buys the music division. On one hand it would mean that Vivendi would basically be rejecting any bid from Marvin Davis, who wants control over all the assets. On the other hand, if this $5-$6 Billion sale goes through this year would Vivendi stop selling assets for now? One thing's for sure. All those stories we saw a couple of months ago saying that Vivendi wanted to keep the music business appear to have been nothing but a smoke screen. The April 29 board meeting could be very important in deciding which bid to take for what assets.

[Dominar of Action]

Thanks for the info, Digger.

[VoyBoy]

Here is another from the BBC, though this reporter believes that a buyout would not make much business sense...

http://news.bbc.co.uk/1/hi/business/2940355.stm

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Apple 'interested' in music giant

Apple Computer is in discussions to buy Universal Music, the world's biggest record company, according to media reports.

The computer maker is believed to be willing to pay $5bn-6bn for Universal, which has been put up for sale by its cash-strapped parent company, Vivendi.

Vivendi wishes to raise about $7bn by selling some or all of its entertainment assets, which also include television and film studios and theme parks.

Neither company would comment on the report, but analysts told BBC News Online that such a deal would make little sense for Apple.

"It wouldn't change our recommendation on Apple stock," said one analyst.

"But since we were already recommending clients to sell, things couldn't get much worse."

Apple's shares fell almost 7% in early trading in New York, before recovering slightly.

Online ambitions

The rationale behind the reported tie-up is Apple's considerable interest in online music.

The firm's iPod music player has been a hit, and its computers are designed with multimedia capabilities such as music and movies as a top priority.

Apple has also been testing services to make distributing music via the internet easier and less controversial.

Some technology analysts have long argued that computer makers need to sign deals with content providers, as a way of differentiating their products at a time of increasing competition and falling prices.

But going to the lengths of purchasing a record company, rather than simply signing a content deal of some sort, is seen as an unlikely step for Apple.

In the dark

The reports have sown further confusion in what was already a murky sell-off process for Universal.

Vivendi refuses to speak about the progress of talks, and is unwilling to speculate even in the most general terms about what it wants to achieve.

It is still far from clear, for example, whether the music business will be sold separately from other Universal assets.

Various companies have reportedly sniffed around, but the only offer so far has come from oilman-turned-investor Marvin Davis, who has bid $13bn for 85% of the whole entertainment business.

According to press reports last year, Vivendi turned down an offer from Mr Davis in November.

The price tags currently under discussion may well be too small for Vivendi's expectations: Universal Music alone enjoys $6bn in annual revenues.

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[Davesnothome]

...if by selling off the music division, the financial markets see it as enough of a change to take VU out of its financial mess. If just by selling the music division, they can get there debt problem within reason, the sale of the Scifi channel might go off the board. VU's board of directors might see the USA network and the Scifi channel as too valuable of assets to sell. Or they might see them as assets that while valuable, are the easiest to separate from the rest of their entetainment empire. Then there's the tax question, of who pays the taxes if this is seen as a taxble gain, whatever assets get sold.

A lot questions, that may not get solved quickly.

Dave

[Digger]

I agree VoyBoy, the sale of the music business to Apple seems to make no sense. No more sense than Vivendi buying it did. And of course we are talking about Steve Jobs, who has been known to do odd things. But the biggest reason to me that it would seem to make no sense is that the music business is very proffitable. I would think Vivendi would prefer to keep it and sell of the less proffitable pieces of the entertainment pie. Of course this is Vivendi, so who knows what they are thinking. I still think (pure speculation) that Vivendi has or will receive bids on most or all of the assets by the April 29 board meeting and the major issue at that meeting will be which asset sales to pursue. They've got another big deadline in June for bond maturities and other debt and will need to make some more sales before then.

[Davesnothome]

I'm talking about the USA network and the Scifi channel. If they are only worth a combined $1 or $2 Billion and you need to cut $6 or $7 Billion in debt, it makes sense to sell the music business.

Actually I thought that the music industry was in the doll drums right now, sales wise. High prices, for music which isn't grabbing many fans acttention, in the pocketbook.

Dave

[Digger]

According to some reports the 5 or 6 Billion for Universal Music is about in line with what they have been valued at by others interested in the assets.

Also, according to some reports, the amount of debt Vivendi is trying to get rid of related to the US entertainment assets is still 12 to 13 Billion, so they might still need to sell more assets even if they do sell the music business.

And, while the music business is still having a difficult time Universal Music still had a $510 million operating profit last year (down 23 percent from the previous year) and still dominates the market with nearly 25% of all CD sales.

Of course, the problem with all these reports is that they keep getting updated as more details become available and also include base speculation from the authors (kinda like my posts, only I admit when I'm speculating).

April 29 would still seem to be a very big day for Vivendi, and potentially for us.

Actually I thought that the music industry was in the doll drums right now

I just got a flash of that scene in "The Phantom Toolbooth".

[Javora]

Originally posted by VoyBoy
Here is another from the BBC, though this reporter believes that a buyout would not make much business sense...


This might not make much since to some but IMHO this is right up Steve Jobs ally. Jobs has been a player in the entertainment business for a little while now, actually since 1986 with the creation of Pixar Animation Studios. IIRC music was to be a part of Steve Jobs now defunct NeXt Company that Jobs created after he left Apple. Jobs loves music and it come through in his designs of the Mac and the names of some of Apple's previous predictions (remember Rhapsody). Like the report said: "The firm's iPod music player has been a hit, and its computers are designed with multimedia capabilities such as music and movies as a top priority".

With that and the rumors about the Macintosh OS may be released on the x86 platform (AMD and Pentium processors). Apple did BTW confirm that a Mac OS did exist for the x86, but only used for testing purposes. Apple and jobs might be looking to corner the computer entertainment market the way Apple has a slight edge in the graphic art design. Jobs know that Apple needs to increase revenue, especially with losing its edge in the education market. I think this is a gamble, business usually is, but if anyone can make this work I think Jobs is the one that can. Like I said before it's all speculation until the deal actually goes through. I just wish Jobs would buy Sci-Fi. I think if anyone would be willing to bring Farscape back it would be Jobs.

Edit: I just caught this update on C|Net. I must say that the deck seems stacked against Jobs and Apple but I still think if anyone can do its Jobs. You can read more about it here:

http://news.com.com/2100-1025-996619.html?tag=fd_top

[grinner]

BIZNETDAILY COMMENTARY
Is Apple $6B crazy?
Russ McGuire wonders why Jobs wants in music biz
Posted: April 14, 2003
1:00 a.m. Eastern

Editor's note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.

By Russ McGuire
© 2003 Business Reform

As if the computer company didn't already have enough problems, Apple apparently is in talks to buy Universal Music from Vivendi for up to $6B, according to a report in Friday's Los Angeles Times. The distractions of entering yet another business likely are enough to sink the company and provide no apparent synergies to Apple's core focus.

Why would Apple possibly consider such a move? Consider these points:

* Universal is the world's largest music company with approximately $6 billion a year in revenues (compared to Apple's roughly $1.5 billion).
* Universal is profitable. Even though profits fell by 23% last year, Universal's $510 million is a lot prettier than Apple's $8 million loss.
* The purchase would dramatically realign the battlefield between technology companies and entertainment companies. Apple has been harshly criticized by music companies for its "rip, mix, burn" advertising campaign that some claimed encouraged music pirating.
* Specifically, Universal Music's catalog is very attractive for Apple's online music service.

However, it's important to consider a couple of meaningful comparisons.

A combined Apple/Universal Music/Pixar might start looking somewhat like a mini-Sony, combining consumer electronics (iPod), computers (iMac), and entertainment properties. However, Sony is operated much more like a holding company whose highly-focused units often feud rather than build upon potential synergies. Arguably, the only benefits that Sony units reap from their unity are a very strong brand and financial flexibility and strength they likely couldn't muster on their own. I doubt that Apple is willing to supplant either the Apple or Universal brand with the other, and a combined Apple/Universal will be a long way from enjoying Sony's financial strength.

However, if the real driver behind this proposed combination is the vertical integration of Universal's content with Apple's online delivery capability, then this looks frighteningly similar to the convergence story behind the AOL/Time Warner merger. In theory, the 'net was going to become the primary means of delivering the vast wealth of content controlled by Time Warner. AOL, as the leading consumer Internet company was uniquely positioned to dominate that delivery. In hindsight, we see how completely flawed that strategy proved to be. Of course, Apple is a much weaker online player than AOL, and Universal Music's content is one-dimensional – just music! Even more telling, as AOL learned the hard way, Apple doesn't need to own the content to distribute it. In fact, according to the LA Times story, Apple has already secured access to music from four of the top five music labels – without owning them!

However, the real hidden menace in this deal is the business sin of distraction. Apple continues to struggle with ways to regain share and grow margins in its core computer business. Record companies face tremendous pressures due to revenues lost to online music piracy which are destroying profitability. Universal Music is in a nose dive that will require intense management focus in order to recover. Apple does not bring any meaningful capabilities to the table to stem the tide.

The critical question is whether Apple's online music plans can be the cure, or whether this is a cure that will kill the patient. There is little doubt that the future of the music industry lies largely in digital, downloadable products. The industry's failure to embrace this future has been a big part of its undoing. However, Apple is likely to accelerate that transition before the business models are well established. If an Apple-run Universal Music suffers just 20% revenue loss while only managing to cut total costs 10%, revenue shrinks from $6B to $4.8B and the operating profit swings from $510M profit to a $100M loss.

And that might be enough to put Jobs and Apple in the history books!

Russ McGuire is Online Director for Business Reform. Prior to joining Business Reform, Mr. McGuire spent over twenty years in technology industries, performing various roles from writing mission critical software for the nuclear power and defense industries to developing core business strategies in the telecom industry. Mr. McGuire is currently focused on helping businesspeople apply God's eternal truths to their real-world business challenges through Business Reform's online services. He can be reached at RMcGuire@businessreform.com.