Do you really want to know the day the music died? I can take you there. It's not that far a hike from today, actually. It was the moment that two kids, possibly time zones away, swapped MP3 song files online.
Sure, folks were making mix tapes and hawking bootlegs for decades before the world was wired. But something was different this time. As the 1990s started winding down and dot-com watchers were glued to the promise of business-to-business transactions over the Internet, the real action wasn't taking place in B2B. No, the real revolution was being shaped 14 letters later in the alphabet as peer-to-peer networking -- or P2P -- was threatening to turn music empires to silent rubble.
As Napster passed the baton to more elusive networks such as KaZaA, it became clear that MP3 piracy was here to stay. It was no longer a matter of running over to a friend's house to bum a cassette copy of fresh vinyl. The viral ways of the Web created a global pool of gasoline. The next hit single was a match waiting to strike.
I'll spare you the play-by-play. Rex Moore (TMF Orangeblood) and I covered a lot of the historical blows in our four-part The Future of Music special last year. The reason I'm bringing this all up now is that last week's rumor of Apple
On the surface, the very notion that Apple would squander more than its $4.5 billion cash balance to scoop up the fading remnants of a major label is ludicrous. Apple might be many things, but certainly not a grave robber.
But Apple took too long to ultimately deny the rumor. It wasn't until a Vivendi board member went public in naming Apple as the probable crash site of its music arm a few days later that the edgy computer maker spoke out on the matter.
I'll tell you what I think. I believe that Apple and Vivendi did have preliminary negotiations on handing over the keys to the music box that plays the likes of Eminem, Shania Twain, and Ja Rule. I would even go out on a limb and suggest that it was the Apple camp that leaked the rumor as a trial balloon to gauge the public's reaction.
While I imagine that Apple may have recognized that it was the kind of trial balloon that invites blow dart practice from the jaded analyst community, maybe it was hoping a few would buy into the selling points behind the convergence. Marrying technology and entertainment made sense once. Maybe it would take more than the rocky union of AOL Time Warner
In an ideal world, someone would have stepped forward to sing the praises of the potential pairing. Under a header entitled "How Apple Got Its Groove Back," someone would spell out the synergy and nod approvingly, even as everybody else was shaking their heads. But that ring bearer never came. Well, that is, until now.
How Apple got its groove back
Owning shares of Apple -- and I do, actually -- is like camping out at your local convenience store every night with your friends. Nothing really exciting happens. Folks come. Folks go. You can dream big and talk bigger but nothing really changes at the end of the day.
The stock has traded in a tight range as investors realize that the company's healthy net cash position will keep it from falling much lower while its stagnant fundamentals are keeping the stock from achieving any kind of material upside.
Apple has become a bore of a bulwark, made worse without a dividend policy to attract the larger crowd of income investors. Let's concede the obvious. Apple is a niche player. The personal computer world isn't going to come rushing back to the Mac. In terms of market share, Apple's pie is out of mode. Its nifty laptops and server products aren't going to slap down its rivals. QuickTime rocks. iPods are cool. But having good looks and a fetching personality matters little if you're stranded on a deserted island.
So, forgive me for donning salmon flippers and making an upstream push, but I think Apple buying Universal Music Group would be a brilliant move. Risks need to be taken before we become rotting shareholders waiting in vain at an abandoned bus stop. If Apple isn't going to use its liquidity to buy back most of its outstanding shares or initiate a huge cash dividend, let that money be used to fund anything else rather than lying there in the First National Bank of Status Quo.
Do it duet
Apple may appear to be an unlikely suitor at first. This was the same company whose "Rip. Mix. Burn." ad campaign angered the entertainment content providers. Why would Apple want to buy into the kind of intellectual capital that it once devalued by using it to light its copyright-defiant cigars?
Well, let's start with that swashbuckling ad campaign. The Internet's growth -- and, by proxy, the fleet of wired computers and peripherals that make it all possible -- has been fueled by killer apps that have been either illegal, immoral, or unprofitable. Promoting the pilfering of music was probably one of the least unsavory angles to pursue.
Besides, the irreversible damage has been done to the music industry. Prerecorded music sales have fallen over the past three years while blank CD sales rose by 40% last year. Attempts at copy-protecting CDs or knocking off the peskier wave of second-generation Napsters have failed. Not only are Universal Music's operating profits in music falling fast but its talent roster is also backed by lucrative contracts that the industry's fundamentals can no longer support.
So why would you flag down an ice cream truck with a broken freezer and offer to buy it? Well, it's all in the maintenance and the new route. Remember when the major labels had the song-swapping sites cornered. What did they do? They bought them. BMG swallowed Napster. Vivendi acquired MP3.com. It's payback time as the labels are the ones on the ropes now, and a company that stands to benefit from the wider availability of quality musical content online holds the bargaining advantage.
Apple's core of Mac users is small. Owning popular musical content and packaging access to the vast Universal library may help move Macs, but this is bigger than that. This is about fixing something that is dinged up and getting a sweet deal on it as a display item. This isn't just Nixon going to China. This is Nixon going to China, shaking a billion different sets of hands, and teaching the Chinese a new dialect. Apple is the music industry's last hope, and possibly vice versa. The prerecorded music sector needs to be reinvented, and no one paints prettier makeovers than Apple.
It will never be the way it once was. Even if every last decentralized trading ring were effectively shut down tonight, the perceived worth of music has been permanently devalued. The new model for the music industry will involve taking marketing advantages of the wider free audiences and having contractual interests in the performances and merchandising revenue streams that will only run deeper with the heightened exposure. Apple is a natural to see this through and create the technological switch to make it all happen.
I realize that I'm in the minority here. Wall Street has made up its mind, sending shares of Apple lower since the rumor first surfaced this month. For them, I can only offer two words of advice:
Rick Aristotle Munarriz was once signed to a major label. He was also dropped once by that label. He owns shares of Apple. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.