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Weekly Column

What's Going On: Why Apple (or Microsoft) Buying Universal Music is a Bad Idea

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

A story came out last week about Apple Computer negotiating to buy Universal Music, part of the decaying Vivendi media empire from France. Apple was apparently showing Vivendi its still-to-be-announced music sharing system when Vivendi suddenly offered to sell the music division, which would instantly make Apple one of the largest record companies and music publishers in the world. This transaction makes a lot of sense for Vivendi and no sense at all for Apple.

Vivendi needs to raise $7 billion to pay off debt, and thinks it can get $5 billion or so for Universal Music (Vivendi says $6 billion, but that’s wishful thinking). Vivendi also needs to get rid of its music division to end a takeover attempt by Marvin Davis, who wants to buy Vivendi’s entire entertainment division for $15 billion, but won’t take it without the music unit. So Vivendi’s motivation is clear.

Apple’s motivation is not so obvious. Making records and publishing music are far from its core businesses of hardware and software, and while it might be nice to own the source of some of that music to be shared, Apple still wouldn’t own it all. And if music sharing is going to kill record companies, as the Recording Industry Association of America continually claims, it certainly makes no sense to buy one of the biggest dinosaurs only to then kill it. That would be throwing money away. The market, too, hated the idea, driving down Apple’s stock price by 15 percent the day after the story broke. This is a very bad idea.

But that doesn’t mean it won’t happen. After all, we are talking about Apple CEO Steve Jobs, who is motivated by emotion and intuition as much as anything else. Whatever seems stupid to you and me, Steve could still decide to do and might even make into a success. He is, after all, the best salesman in the world.

Thinking that I was missing something — that there was some obvious synergy I just couldn’t see — I turned to my friend Harry Balk for help. Harry, who is retired, used to run the Creative Department at Motown Records. Harry discovered Del Shannon and Johnny and the Hurricanes. If anyone knows the music business, it is Harry Balk. He’d explain it to me.

So I called Harry and he told me the story of how Marvin Gaye’s album “What’s Going On” became a hit for Motown in 1970. Stay with me now, because this does make sense in the end.

Marvin Gaye was married to the sister of Berry Gordy, Harry’s boss and the founder of Motown Records. Marvin had made some hit records for Motown, but when he wrote “What’s Going On,” he was separated from Berry’s sister, and they later divorced. At that time, Berry Gordy just didn’t like Marvin Gaye very much, and he certainly didn’t like “What’s Going On.” Almost nobody at Motown liked the lushly-produced album, which probably says more about how intimidating Berry Gordy could be than about the quality of the disk, itself. Only two people at Motown liked “What’s Going On” — Harry Balk and little Stevie Wonder.

Marvin Gaye was under contract to Motown and owed an album to the label, but Berry Gordy wasn’t going to release “What’s Going On,” which was apparently fine with Marvin because he was thinking of changing careers and becoming a football player with the Detroit Lions. I am not making this up.

The record was finally released when Berry Gordy went to California, leaving Harry Balk in charge back in Detroit. Harry released the album against Berry’s wishes — an incredible risk to take. Fortunately, record stores reordered 100,000 copies on the record’s very first day on the market, and it eventually rose to number two on the charts. Suddenly, everyone liked “What’s Going On,” even Berry Gordy.

Now let’s imagine this same scenario at Apple Computer. Like Motown, Apple is a creative company with a particular style set by a charismatic and autocratic leader. But not since the days of Steve Wozniak has one person been completely responsible for an Apple product. Even on the software side, not since Andy Hertzfeld and Bill Atkinson has an individual contributor been in a position to make or break a title. There are strong egos and major contributors at Apple, but we’ll never know their names. Nobody is going to release a new product while Steve Jobs is on vacation.

Steve Jobs would have fired Marvin Gaye. There is no Harry Balk at Apple because Steve would have fired him, too. Nobody at Apple can stand up to Steve Jobs, which is very sad and not at all good for the company. Understand that this is a company where nearly everyone takes the stairs in the building that contains the executive offices because they are afraid of being caught in the elevator with Steve Jobs.

What’s even sadder is that Steve actually likes people to stand up to him, but it almost never happens. And while Steve can be charming in the extreme, he is not a guy who can manage a stable of temperamental artists. Imagine Steve bringing Mariah Carey to tears. There can be only one temperamental artist at Apple, and his name is Steve.

So what is really happening here? Apple can’t really want to buy Universal Music, yet they allowed the story to get out even though it temporarily hurt the stock. This is not a story that slipped out by accident, it was deliberately leaked. Why would Apple do that?

This week there is a rumor that Microsoft, not Apple, will buy Universal Music. Now things start to make sense.

Steve Jobs is envious of Bill Gates’ power and wealth, while Bill Gates is envious of Steve Jobs’ charisma and vision. All interactions between the two are dominated by Steve, both because he has the greater need to dominate and because Bill is just too busy being fascinated watching Steve to bother taking charge.

Like Tom Sawyer painting the fence, I think Apple is trying to sucker Microsoft into buying Universal Music. It would be a $5 billion hit on Microsoft’s treasury and a $10 billion headache for Microsoft as it dawns on the company what a giant mistake they have made. The business advantage to Apple would be minimal, but that’s okay. The real goal isn’t beating Microsoft but controlling Bill Gates. It is all a game.

That’s what’s going on.

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