Vivendi is in deep doo-doo and so it is perhaps prepared to sell Universal, the worlds biggest music company, for the same price as its annual earnings, five times less than what it originally paid for it.
But if Vivendi is in immediate trouble, this is nothing compared to the bottomless manure pit that the music companies find themselves in longer term – they market and distribute music, and digital music can leverage cheap viral marketing and zero distribution cost.
The opportunities for music companies of the future are great, they could leverage the opportunities of digital media to create lean operations with high profit margins, but these companies will be smaller and the existing record companies would rather fight than go with the flow. When you are in a quicksand-like substance you shouldn’t fight against it – so deeper into the shitpile they go.
With digital media there are not merely new models of distribution, but entirely new business opportunities based upon the hardware and software to manage growing collections of digital media. The PC revolution has been driven by business use, whether in the home or office, but now perhaps there is room for another type of personal computer, one that is geared around digital media. Nobody would argue that Tivo’s market share has anything to do with the PC market, it replaces the analog VCR, but the Tivo is a computer. Now Apple have a 3% share of the PC market largely stuck in niche areas, breaking into the mainstream is very difficult – but if every home is destined to own another computer and that computer is a media PC, then Apple could do very well, they excel in media software and have hardware that will compete well in a luxury goods market where value-added design is a plus.
So why would Apple buy a content owner? This would surely make them like Sony, who’s consumer electronics division has been held back from creating an iPod because of conflicts of interest with the content side of the business. The only reason for doing so would be if Apple were going to create the type of content business that didn’t conflict, the type of content business that every competitor will have to follow inevitably, one that would provide what consumers want, are prepared to pay reasonable prices for but are not offered at all. More importantly a ‘digital music’ marketing and distribution company, dovetailed into a digital media software and hardware company would perhaps own all the moving parts and therefore innovate without obstruction. This will take a visionary to pull off, and Steve Jobs is nothing of not a visionary.
The vision is correct but the risk high, Apple have often been too early, have tried to do too many things and ended up with a tiny share of each. Today’s stock drop for Apple shows that investors either don’t have the same imagination or stomach for it, but you have to admire the sheer chutzpah of Jobs.