not rich, just expensive

There was an interesting story on Slashdot the other day titled Why Google Should Buy the Music Industry, which raised the idea that, rather than continuing to negotiate untenable terms with an indignant group of industry bosses, Google should simply buy all the record labels. The notion put forward was unrealistic. This would never be allowed, but it chimed with some things I’d been mulling over regarding the broader licensing issues within music, movies and TV, and the difficulties companies like Google, Apple, Microsoft and Netflix have had in securing reasonable, sustainable licensing terms.

Apple has over $50 billion in cash, estimated to be nearly $70 billion by end 2011. As far back as 2003, there have been stories about Apple buying a movie or music studio, something that was dismissed out-of-hand by most people. But as Apple’s media ecosystem becomes more reliant on securing favourable licensing terms from the studios, maybe this idea has some merit.

It’s obvious that Apple and others have been struggling to agree terms with studios in areas around TV show rentals and streaming. But what if Apple changed the game, and bought a single, large studio. If we look at the example of NBC Universal, this is a massive media organisation that controls a large amount of TV, movie and music interests through it’s ownerships of Vivendi, Universal Music Group, NBC and more. Should Apple buy NBC Universal, it could see through changes in the conditions and terms of licensing for these materials, not just to themselves, but everyone in the industry. This would enable better pricing, more relaxed distribution models, and would help everyone from Netflix and LoveFILM, through to Apple themselves ensure the prospect of digitial TV and movie distribution palatable to end users. And the cost of making such a move seems to make even more sense.

Towards the end of 2009, Comcast and GE entered into an agreement to part own NBC Universal. At the time, Comcast paid $6.5 billion in cash to take a 51% majority share of the company. Even today, those figures would suggest, should Apple make a move on NBC Universal, their $50 billion cash reserve is more than enough to ensure a deal could happen. 

The article on Slashdot suggested Google buy all the music companies to ensure reasonable licensing terms. But why bother? Just buy one large media organisation, change the game regarding broad, reasonable licensing, and your competitors will have no choice but to follow. It’s a similar strategy to the one Apple pursued with the mobile networks; Fight hard, force through a change at one large, globally recognised powerhouse, and the others will have no choice but to get on board, once the success of the venture if proven.

I use NBC Universal as an example, but this scenario could be applied equally to any number of other companies. Steve Jobs’ ties with Disney might also provide other potential avenues for takeover discussions. As one of the commenters to the original Slashdot article said, “It’s so crazy, it might just work!”