Apple: Will it buy EMI if it fails? WMG?

By Richard Menta 1/28/11

The US Department of Justice is charged with deciding if large mergers pose any monopoly abuse, but for the most part it has used a soft hand with curbing such matters. Allowing the merger of Ticketmaster and Live Nation, two near monopolies with an established track record of abusive behavior, shows how hands-off the DOJ plays it. Many feel the recent Comcast NBC merger is no better.

So the thought of Apple picking up the targeted remains of EMI Group should not set off any alarms that the DOJ will stop such an acquisition. EMI is in financial trouble and while parent Terra Firma is doing everything to keep the 80-year old British label solvent there is a real possibility that the the firm could go the way of Pontiac and Plymouth. If that happens and the company's assets are broken up among the most valuable assets are the publishing rights.

Such an acquisition would be a boon to Apple's iTunes business as the company would get to keep the money it presently sends to EMI for rights - and collect some from iTunes' competitors.

Richard Menta

The beauty of buying just the publishing rights is that is that there are no artists to nurture and support. iTunes will not only get to keep the money they now send to EMI, but will earn additional revenues from everything from film rights to reproduction rights.

EMI is not the only ailing label looking to sell. Rumor is Warner Music Group is searching for a buyer of its publishing arm, Warner/Chappell, a move that allegedly sets WMG to buy the failing EMI business. The problem is that Warners isn't doing so well either as CD sales continue to plummet industry-wide. Such an acquisition poses a significant financial risk for Warners.

Apple will buy with cash, which means no interest payments to make. Every dollar iTunes keeps in rights mates 1:1 with every every dollar of the investment. Apple could aquire either (or both) the Warners or the EMI assets with minimal risk to its financial health. As of last fall Apple was sitting on $50 bn in hard currency. In February of 2010 Terra Firma head Guy Hands pegged the value of EMI Music Publishing at £1.46bn and of its record company EMI Music at less than £800m. Today, those figures are lower and dropping.

But will it happen? Right now it's conjecture as Apple has not made any public overtures for the rights part of the EMI business. Still, it is conjecture that makes absolute business sense if the EMI assets are placed on the market by way of fire sale. It gives Apple not only an added revenue stream, but control of a sizeable piece of recorded music history, which it can leverage - abuse even, for those who feel Apple is too powerful already - to the great favor of its existing media endeavors.

And don't assume the DOJ will stop it. Precedent suggests otherwise. Of course, there is one entity who could thwart such plans if Apple has them. That entity is Google, which has it's own ideas for the future of recorded music and just as much money.