The bidding for Warner Music Group
"Apple could buy Warner, with an enterprise value of $2.7 billion, and the rest of the music industry by making only a small dent in its $60 billion cash hoard," The Wall Street Journal's Heard on the Street column suggests this morning.
Martin Peers quickly backs off his suggestion.
"It is much more profitable, after all, to make the hardware that runs the content than to actually take a risk on the content itself," he goes on to write.
It's way too easy to spend Apple's money. The country's most valuable technology company continues to pad its coffers with no interest in shelling out money for a massive share buyback or initiating a dividend policy. The cash king of Cupertino closed out its latest quarter with $59.7 billion in cash, short-term investments, and marketable securities. It's only natural to see its name stapled to every bogus buyout rumor.
There's little to gain in making a play for Warner.
- Owning one of the major labels would be seen as a conflict of interest by rival record companies.
- Prerecorded music with chunky overhead just isn't good business anymore. Warner has posted nine consecutive quarterly deficits.
- Digital music is no longer a savior. Download revenue at Warner has taken a sequential hit in each of the past three quarters.
Why would Apple want in on that downtrend? The iTunes Music Store may be the country's leading prerecorded music retailer, but it's also the great leveler. Artists no longer need major labels to get noticed.
There will be bidders for Warner.
Reports have surfaced of Sony
These are the names that make sense.
Who do you think will buy WMG? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. He does not own shares in any of the stocks in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.