Jobs’ Overture Hits Sour Note on Wall Street
Wall Street took a bite out of Apple Computer Inc. on Friday as Chief Executive Steve Jobs’ overtures to buy Universal Music Group were alternately hailed as a stroke of genius and heckled as the oversized ambitions of Silicon Valley’s version of a rock star.
Shares in the company that urged PC users to “Think Different” fell 8% to $13.20 on Nasdaq on doubts that a union of two slumping industries would revolutionize the way people buy music or use their computers.
Although news of a possible deal surprised and perplexed many in technology and entertainment, few were willing to dismiss it outright -- largely because Apple’s iconoclastic co-founder has a knack for capturing the imagination of consumers and forcing competitors in new directions.
“Never underestimate Steve Jobs,” said Tim Bajarin, president of technology consulting group Creative Strategies Inc.
The Times reported Friday that Apple was in talks with Vivendi Universal to buy the French conglomerate’s music group, which is the world’s largest record company and home to artists such as 50 Cent, Shania Twain, U2 and Luciano Pavarotti.
Sources said Universal Music Group could fetch as much as $6 billion, or slightly more than Cupertino, Calif.-based Apple’s $5.74 billion in sales in 2002. Apple has $4.4 billion in cash and securities.
Executives at Apple declined to comment.
Vivendi Universal spokeswoman Anita Larsen said: “We have had interest by a number of parties in the company’s entertainment assets. But in order to protect our interests and so as not to cause any huge disturbances with morale among employees, we are going to decline further comment on any of those rumors or speculative stories that are out there.”
Nonetheless, the potential union was the talk of the computer and music industries.
Both are in a slump and looking for ways to reinvigorate themselves.
The record labels blame computer makers and electronics manufacturers for their troubles. CD sales have fallen 25% worldwide over the last two years as consumers steal what they want from online services and use gear made by Apple and other companies to store and play their downloaded booty.
Computer makers have their own problems. Global PC sales have slowed in recent years.
Apple, meanwhile, has watched its share of the desktop computer market shrivel to 3% from as high as 20% in the early 1990s.
It’s the tension between music and computing that encourages some who are optimistic about the union.
“If they could take this one application, make money from it, and motivate other labels to do the same, it would have ramifications way beyond music,” said Howard Gleicher, chief investment officer and CEO of Metropolitan West Capital Management, an investment firm in Newport Beach that manages 2.7 million Apple shares.
Apple’s image is that of a hardware maker, but many analysts increasingly see the company as more than that. Many see Jobs’ move as a bid to emulate Sony Corp., which sells digital entertainment as well as the devices on which to play them.
“Apple’s biggest competitor is really Sony,” Bajarin said. Both companies, he said, aspire to be “the hub of the digital lifestyle.”
Other analysts argued that Sony itself struggles with the tension between its devices arm, which strives to be as easy as possible for consumers to use, and its entertainment arm, which is more concerned about piracy.
“For Sony, it’s been counter-strategic,” said Rob Enderle, an analyst at Forrester Research. “When they tried to build anti-piracy technology into their music players to accommodate the entertainment side, the entire line failed to sell. They made it too difficult for consumers to rip music into their devices.”
Wall Street took the pessimistic view.
“There’s obviously a lot of concern,” said Brett Miller, analyst with A.G. Edwards & Sons, which hasn’t done banking for Apple and doesn’t own the company’s stock. “The music industry has struggled in embracing the realities of new media. At the same time, the tech industry is in a funk. So you have two industries in trouble, and it’s unclear whether you’re doing any good by putting the two together.
“People are wondering: What the heck does Apple know about the music industry?”
Jobs knew little about the movie business when he launched Pixar Animation Studios, which produced hits such as “Toy Story” and “Monsters, Inc.”
But Robert Cihra, technology analyst with Fulcrum Global Partners, which doesn’t do business with Apple and doesn’t own Apple shares, cautioned that despite Jobs’ success with Pixar, not all his initiatives have been successful.
“He’s been known to do some kooky stuff in the past,” Cihra said.
News of the talks left many of Universal’s competitors stunned.
Like Universal Music Group, AOL Time Warner Inc., Bertelsmann Music Group and EMI Group have deals with Jobs to allow their catalogs to appear on Apple’s new online music service, which is expected to be launched in two weeks.
Privately, rival executives applauded the possible move by Apple, voicing optimism that a technological visionary such as Jobs would be interested in buying into the music business.
They view that as a ringing endorsement for the industry, underscoring the importance of music as a valuable resource on the Internet.
In addition, most rivals agreed that Jobs’ potential affiliation with Universal would not deter them from participating in his new online service. Indeed, all five of the major record corporations already promote their songs on AOL’s homepage despite the fact that AOL is aligned with Warner Music Group.
“There couldn’t be a technology company more accommodating to art than Apple,” said Record Industry Assn. of America Chief Executive Hilary Rosen. “It would be a really interesting, creative partnership if it ever happened.”
Executives in the online music business, though, were skeptical that Jobs would be able to figure out what others haven’t: how to make money selling music online.
“Historically, people are always interested in what Steve Jobs does,” said one executive who declined to be named. “But no one person has a clear solution right now. We’re in a period where people are aggressively experimenting. So this would be in the realm of the evolutionary, not revolutionary.”
Times staff writers Joseph Menn, Chuck Philips and Richard Verrier contributed to this report.
