Apple Reportedly in Talks to Buy Universal Music

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http://www.latimes.com/templates/misc/=20
printstory.jsp?slug=3Dla%2Dfi%2Dapple11apr11&section=3D/printstory

Key quote, below: Defying conventional wisdom, Jobs apparently is =20
betting that music is finally on the verge of becoming a profitable =20
presence on the Internet. Apple has been quietly testing a service that =20=

some music business insiders believe could pave the way for widespread =20=

online distribution of songs.

Owen

Apple Reportedly in Talks to Buy Universal Music

A deal could yield up to $6 billion for parent firm Vivendi and make =20
tech maverick Steve Jobs the most powerful figure in the record =20
business.
=A0
By Chuck Philips
Times Staff Writer

April 11, 2003

In a pairing that would alter the architecture of the music business, =20=

Apple Computer Inc. is in talks with Vivendi Universal to buy Universal =20=

Music Group, the world's largest record company, for as much as $6 =20
billion, sources said.

Such a seemingly unlikely combination would instantly make technology =20=

guru Steve Jobs, Apple's co-founder and chief executive, the most =20
powerful player in the record industry.

Universal, which reaps about $6 billion in sales annually from artists =20=

such as 50 Cent, Shania Twain, U2 and Luciano Pavarotti, would be =20
controlled by a maverick who revolutionized the computer market and =20
coined the mantra "rip, mix, burn," which many in the music business =20
read as an invitation to electronic piracy.

The discussions, a closely held secret for several months, could =20
founder over unresolved issues. Apple hasn't made a formal bid but may =20=

offer $5 billion to $6 billion for the music company before Vivendi's =20=

April 29 board meeting, according to the sources.

Jobs and other Apple representatives declined to comment, as did =20
representatives of Universal Music Group and Vivendi Universal.

The Cupertino, Calif.-based computer maker's surprise play for =20
Universal Music could alter the dynamics of the bidding for Vivendi's =20=

entertainment assets. The French giant, in a move to reduce debt, seeks =20=

to raise $7 billion this year by selling assets that probably would =20
include some or all of its Universal film, television, theme park and =20=

music units.

Investor Marvin Davis has offered about $13 billion for 65% of the =20
entertainment assets and has been the only known bidder to express =20
serious interest in the music company. A separate sale of the music =20
operation would appear to work in favor of Liberty Media Corp. and =20
others that are focused on the company's other entertainment properties.

Jobs' pursuit of Universal comes at a time when Apple, with less than =20=

3% of the desktop computing market, has been struggling to find its =20
next wave of growth and the music industry has been buckling beneath =20
the pressure of online piracy and falling sales.

Defying conventional wisdom, Jobs apparently is betting that music is =20=

finally on the verge of becoming a profitable presence on the Internet. =20=

Apple has been quietly testing a service that some music business =20
insiders believe could pave the way for widespread online distribution =20=

of songs.

People who have tried the service, expected to debut by the end of =20
April, say it makes downloading and purchasing music as simple and =20
nontechnical as buying a book from Amazon.com. It allows users to buy =20=

and download songs to their computers with a single click and to =20
transfer the music automatically to their portable MP3 players.

The computer maker, known for its iMac desktop computer and other =20
high-profile products, posted an $8-million loss on sales of $1.47 =20
billion for its fiscal first quarter ended Dec. 28 =97 marking the =20
company's first back-to-back quarterly losses since Jobs returned to =20
the CEO post in 1997. Apple has annual sales of about $5.74 billion and =20=

had about $4.4 billion in cash, cash equivalents, and short-term =20
investments as of Dec. 28.

Jobs, who also is chairman of Pixar Animation Studios, helped found =20
Apple in 1976, then stepped down as its chief nine years later to =20
launch Next Inc. He returned to Apple when it acquired Next.

Universal Music Group, which saw operating profit slide 23% to $510 =20
million last year, dominates the industry in 63 territories around the =20=

world and accounts for about one-quarter of all CD sales. Headquartered =20=

in New York, the record company boasts a deep roster of executive =20
talent and music stars on such top labels as Interscope and Def Jam.

Vivendi first approached Jobs in December, sources said, not long after =20=

its music executives visited Apple's headquarters to view a =20
demonstration of his new digital service. Impressed by the service and =20=

Jobs' vision of music's future, Vivendi initially proposed selling him =20=

a minority stake in its record operation, sources said.

Since December, the discussions have broadened considerably, with Jobs =20=

attending a series of meetings with Vivendi chief Jean-Rene Fourtou and =20=

other top executives in New York, Los Angeles and Cupertino, sources =20
said.

By March, Jobs began weighing the possibility of buying the entire =20
music division and hired investment bank Morgan Stanley to conduct due =20=

diligence, sources said. This week, accountants were poring over =20
bookkeeping records at Universal offices in New York and Santa Monica, =20=

sources said.

Jobs' interest in owning a music company comes at a time when the =20
record companies believe that piracy has decimated CD sales around the =20=

world, shrinking revenue nearly 25% since 2000. Last year, Jobs =20
infuriated the industry with Apple's "rip, mix, burn" marketing =20
campaign, which many executives believed promoted piracy of music on =20
Apple's computers, though Jobs insisted that the technology was meant =20=

only for legal copying.

People close to Jobs say he is convinced that the music industry is =20
about to turn a corner in the copyright war. With the government =20
shutting down pirate Web sites and the record industry now going after =20=

individuals for alleged piracy, the Apple chief believes digital theft =20=

will become increasingly more complicated, prompting fans to migrate to =20=

legitimate services, sources said.

Analysts believe that the 48-year-old Jobs will have to do more than =20
make legal downloading easy. They say he also will have to slash =20
prices, possibly to as little as 10 cents per song, to persuade =20
consumers, many of whom have grown accustomed to free downloads, to buy =20=

music from Apple.

The launch version of Jobs' new service was developed by Apple =20
specifically for users of its computers and iPod MP3 device. Given its =20=

minuscule market share, Apple is likely to develop a version of the =20
service to run on computers using Microsoft Corp.'s dominant Windows =20
software.

Jobs already has secured deals with four of the world's five largest =20
music corporations to allow their catalogs to appear on the service, =20
sources said.


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