Citigroup (NYSE: C ) may have its mitts on troubled EMI Group now, but it's unlikely to hold it for too much longer.
I went over a few of the possible landing places yesterday. Now it's time to shoot down speculation on some of the companies that will definitely not be bidding on the label behind Katy Perry and Gorillaz.
Apple (Nasdaq: AAPL )
"Steve Jobs's company is sitting on wads of cash and has an interest in the music business," Forbes' Zack O'Malley Greenburg wrote two months ago in singling out Apple as a potential buyer of EMI.
He reiterated the class of Cupertino as a prospective suitor on Tuesday night, when Citi took control of EMI.
I don't see this happening for several reasons.
My primary concern is the conflict of interest that owning EMI would represent. Apple is the country's largest retailer of music through iTunes. How would the other labels feel if Apple owned a rival? How faithful would they be to Apple's digital storefront if EMI artists began to be promoted more actively?
Distributors buy some of their content creators all of the time. Some may compare Apple owning EMI to Comcast's (Nasdaq: CMCSA ) decision to snap up NBC Universal, but it's not the same. Apple has all but cornered the digital distribution of music. There's no way that it will go on a musical content shopping spree.
If a distributor is going to make a play, it's going to have to be cash-rich enough to pull it off, and hungry enough to need a label that it can use to generate exclusive content. Unfortunately, that narrows the pool to just Microsoft (Nasdaq: MSFT ) in a last-ditch effort to make its Zune brand relevant in digital music.
Oh, that's not going to happen either. Can you imagine the shareholder uproar at Apple or Microsoft if either company acquired a cash-bleeding record label?
There's also the potential legal obstacle. Apple and The Beatles' Apple Corps battled for decades over Apple's promise never to enter the music business as a settlement condition for using the Apple moniker. Things heated up as Apple computers evolved to include music-friendly features, before totally blowing up with the rollout of the iTunes Music Store.
The parties finally settled four years ago. Most of the terms are under wraps, though it's widely believed that Apple paid a lot of money for trademark rights. Maybe it can start its own label now, but why would it chance the move?
Google (Nasdaq: GOOG )
Another name on Greenburg's short list this week and two months ago is the world's leading search engine.
"For years, rumors of a Google-backed cloud-based music service have been buzzing around the blogosphere," he wrote back in December. "More recently, industry insiders have been speculating that the company could get involved in the bidding for EMI."
Google Music is real by most accounts. The licensing hurdles will take longer to clear than the technological ones, but several sources have reported that Google executives have been negotiating with label chiefs for the streaming service.
How does it make sense for Google to disrupt those talks by shacking up with one of the actual labels? This is the same Google that has unceremoniously irked movie studios and television show producers by releasing Google TV before coming to licensing terms with the content creators. How well do you think talks with Warner Music Group (NYSE: WMG ) , Sony Music, and Universal will go if Big G already owns a smaller rival?
And getting back to the point raised with Apple: Google shareholders will hammer the stock if it moves away from its high-margin paid-search business to follow a music career.
Sirius XM Radio (Nasdaq: SIRI )
The satellite radio giant isn't on Greenburg's list, but its name may small-f foolishly pop up in the coming weeks. Given all of the money that Sirius XM shells out in music royalties, why not get some of that back by owning a major label?
Sirius XM also has billions in tax-loss carry-forwards, so it's really just a matter of time before it begins to acquire profitable companies to help it cash in on the tax break. That said, it's unlikely that EMI is profitable. It may never be profitable again.
Sirius XM has a good thing going; its share price has appreciated several times over during the past two years. The last thing it needs is to come undone by snapping up a company in an industry that's going the wrong way. Sirius XM's balance sheet already has $3 billion in debt, and Citi's unlikely to do go for anything other than an all-cash deal.
Everybody else
Pick a name, any name. That company isn't going to buy EMI. Outside of WMG, there isn't a single public company that wouldn't get hammered if it stepped up to pay 10 figures for EMI. Synergistic opportunities do make WMG a good match -- if it can somehow come up with the scratch.
Citi's best bet if WMG doesn't come through is to smoke out private equity. These firms can afford to buy an ugly situation without facing public ridicule.
Somewhere out there, EMI's own Coldplay is belting out "Fix You." But can anyone truly fix EMI?
It won't be Apple, Google, or Sirius XM -- that's for sure.
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