Lefsetz: Apple Buys Universal

With the Net ablaze with talk of Jim Griffin's P2P licensing scheme, Steve Jobs has worked in secret to pull off the staggering, mind-bending, game-changing acquisition of Universal Music.

Despite Vivendi's public vote of confidence in its music operation, the brass of the conglomerate has been trying to unload its music asset for years. The constant acquisitions, of Sanctuary and publishing companies, was only window dressing. A paint job to make Universal appear to be a Goliath, when really it's a shrinking operation completely unprepared for the twenty first century.

You can't second-guess Vivendi here. There was no strategic fit. There's no synergy between water and music. And CD sales keep tanking. And despite Doug Morris' efforts to corner and disable Apple, only the opposite has occurred. The Cupertino company has gained in strength. So, if you can't beat 'em, join 'em.

As for Apple… The old saw was content is king. But savvy observers know that distribution is king. Which is why the major labels are screwed, for they no longer have a stranglehold on distribution. But if one owns both the content AND the distribution, one truly is king. It's akin to Terry McBride's concept of collapsing the copyrights. If you control everything, you don't have to ask for permission, you just act!

And starting April 15th, all Universal tracks at the iTunes Store will be fifteen cents. Steve wanted the price to be lower, rumor has it as low as nine cents, but he couldn't convince Marty Bandier and the rest of the publishers to lower their share, so fifteen cents it is.

Yes, while the labels have been clamoring for Apple to raise prices, Steve Jobs has accused the industry of greed, and has insisted on low uniform pricing, so as not to confuse the customer. Apple will continue to sell the other labels' wares for ninety nine cents, but Guy Hands has already signaled he's ready to join hands with Jobs, and although an announcement won't be forthcoming for a few weeks, it is believed EMI tracks will be fifteen cents by May 1st. As for Warner and Sony BMG… The fact that Edgar Bronfman has stopped pillorying Apple and his testified to Jobs' genius indicates he will go along with the price drop. But wonderers are wondering if Thomas H. Lee, et al, will bail on the company before this transaction is complete. With the stock tanking and the market in the crapper it might be time for them to pull the plug. Some analysts believe Bronfman and Lyor Cohen have already been informed of this sale. The renewal of their contracts at rich prices was their final reward, and purchased their silence. Actually, Warner tried to sell directly to Apple, but Steve said no. Warner's market share was not large enough, and Steve questioned the ongoing functionality of the company. Bronfman enlisted Jimmy Page to call Jobs, to plead for a deal, but Jimmy crossed Edgar by not agreeing to deliver a new Zeppelin album. And, Jobs is a Dylan fan anyway.

Which brings us to Sony BMG. Clive Davis had Charles Goldstuck type up an e-mail for the press, Clive being unable to operate a computer himself. Said statement indicated the soon to be octogenarian was thrilled to be in business with Mr. Wozniak. And offered a record deal for Steve's girlfriend, Kathy Griffin. The wrong Steve was too busy playing Segway polo to respond, but the Internet is ignoring Mr. Davis' faux pas the same way he ignores the Internet. As for Sony, Charlie Walk has indicated that the future of music is Verizon Wireless. That he's got a deal for Wyclef and Shakira to do a video a year for the mobile company. That he's the true innovator, and being younger than Jobs, he's planning to outlast him, just like Charlie outlasted Tommy Mottola, Michele Anthony and Donnie Ienner. Rick Rubin has not issued a statement. He can't be found. Rumor has it he's out of cell range, cutting Metallica's album for Warner. And the future is subscription anyway, right?

Maybe.

You will be able to buy tracks at iTunes for fifteen cents. But, you will also be able to acquire everything in the store for ten dollars a month, assuming you commit to a one year contract. Jobs is not convinced subscription is the future, but he does not want to appear a Luddite, so he's dipping his toe. There is truth to the rumor that TicketMaster insisted on doing the billing, charging convenience, facility and download at home fees, but Jobs stood firm. Jobs wants to usher in a new era, sans the intimidation and manipulation of the historical music business.

And that being the case, for the next twelve months, there will be a moratorium on lawsuits regarding the use of Universal music online. That's right, use U2 in your YouTube video. MySpace can stream entire tracks. Build your business on music's back. Jobs believes this unfettering of the assets will ultimately drive more income. He wants to dissociate the company from the Doug Morris era, when the old aphorism "If there's a hit, there's a writ.", ruled.

As for Mr. Morris, he has resigned from Universal effective immediately. He has purchased an interest in the Trans World retail operation and plans to buy radio stations from CBS. Still believing in the old game, Mr. Morris is looking to go back to his roots, researching radio records in secondary markets and blowing them up at physical retail.

Jimmy Iovine's resignation is also effective immediately. He's been out of the building mentally for over a year now anyway. What with hands in the movie business and Vegas. Jimmy tried to do a deal with Jobs, but Steve couldn't understand why he should pay Jimmy so much money if the behatted one's got so many side projects that Apple would not share in the revenue of.

Zach Horowitz didn't even do the deal. That was left to Bert Fields. Fearing being called to testify in the Pellicano trial and the decimation of his reputation, Bert wanted one big victory before he went to the Big House, if not in fact, then in Hollywood's mind. Bert lobbied Vivendi directly, squeezing Zach and the rest of the Universal bosses out completely. Furious about being left out of the deal, the executives felt humiliated, the same way David Geffen did when MCA kept him out of the loop in its sale to Matsushita.

So where does this leave Live Nation?

Live Nation has desperately been trying to sell itself. But it can't find any takers. Jobs laughed. He doesn't see any superstars on the horizon, no one to fill arenas, he wasn't biting. That's why Live Nation announced its deal with U2 on Monday, to try and remove some of the sting from being rebuffed, to try and win the press war. A likely story, Michael Rapino triumphing over Steve Jobs. Or should we say Michael Cohl…since he really runs the operation.

Madonna is furious. She lobbied Jobs directly to do a deal with Live Nation. Wanting to recover the fifty cents on the dollar she lost when Live Nation's stock tanked right after she signed her contract. She flew into Silicon Valley on a Gulfstream and insisted that Steve's kids play with Lourdes, which went fairly well, but when Madonna cued up a backing track and started to sing, Steve's progeny put their fingers in their ears and began crying. Saying they wanted the old lady to stop. That killed the deal right there. Although while exiting, the Material Girl shouted good luck getting Iggy Pop to do any commercials. But Steve didn't get the reference, having paid no attention to the Rock and Roll Hall of Fame induction ceremony, just like the rest of America.

Phil Anschutz has not contacted Jobs. AEG has stayed away. Anschutz is anti tech ever since Qwest. He doesn't want any prying eyes.

Jimmy Dolan tried to buy his way in, offering up Fuse and Knicks tickets, but Jobs said the Knicks sucked, and he's only be interested if Isiah was history. Offended, Dolan shook his fist and warned Jobs that when Cablevision merged with Comcast, he'd have the last laugh, throttling the iTunes Store's bandwidth. This is no idle threat, so it is believed Jobs will offer Dolan something. Starting with a Friday beer blast appearance for JD & The Straight Shot at 1 Infinite Loop.

But can Cablevision and Comcast merge? What about the FCC? What about antitrust? With the XM/Sirius merger approved, belief in business circles is all mergers will pass muster. That there's no barrier to entry, that consolidation is good for the consumer. Nothing is stopping you from recording your own music and establishing your own social networking site. You won't get on the homepage of iTunes, but you can build your own music storefront.

Or maybe you can't. Just like Jobs has refused to license OS X, effective June 1st, all online resale licenses for Universal music will be pulled. Amazon will immediately crater and Apple will rule the landscape. Steve will cloak this decision in some gobbledygook the public will buy, but all this power in one entity can't be good. Then again, are record labels going extinct? Could be. Since the price for Universal is rumored to be significantly under five billion dollars, indicating a fire sale. Guy Hands may believe there's a future in recorded music, but Vivendi certainly does not.

Oh, and if you haven't figured it out by now, April fools.

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