Apple Computer seeks new direction

But in recent years Apple’s visionary chief executive, Steve Jobs, has found another world to conquer: the field of digital media.

Bent on bringing music, photography and video to the home computer, Jobs reportedly is seriously discussing the acquisition of the world’s largest record company, Universal Music Group.

The Los Angeles Times reported Friday that Apple is set to offer conglomerate Vivendi Universal up to $6 billion for the music company. Burdened with debt, Vivendi has been exploring the sale of some or all of its entertainment assets, including its movie and theme park businesses.

Buying Universal would represent an audacious move, even by Jobs’ standards. Apple investors reacted negatively to the news, driving the stock price down $1.17 a share to $13.20, and some analysts questioned the wisdom of any such deal.

But others said the merger would make perfect sense, shaking up both industries and putting Apple at the forefront of the Internet music phenomenon, in which consumers download music off the Web. It could help Apple, whose North American factory is in Elk Grove, sell more computers.

It could also help Apple fend off electronics giant Sony Corp., whose powerful presence in the entertainment business has enabled it to sell computers to the multimedia fans normally drawn to Apple, said analyst Rob Enderle of Giga Information Group in Mountain View.

“If you look at Steve’s strategy, he’d really like to make Apple a stronger competitor to Sony,” said analyst Tim Bajarin of Creative Strategies Inc. in Campbell.

Bajarin said buying Universal is a logical extension for Apple, which has moved forcefully into the media business recently, scoring successes with its iPod digital music player and software programs for storing and manipulating music, pictures and video on computers.

Apple already is gearing up a pay-for-play music service for taking songs off the Web and playing them on the iPod. The Universal purchase would fit perfectly with that strategy, Bajarin said.

“Owning content is the way to go,” Bajarin said. “It’s worked for Sony.”

Jobs, who brought the world such unconventional products as the iMac and dared to take on the Windows-based PC makers, has long had an interest in media. Besides running Apple, he is chairman of Pixar Animation Studios, which provided animation technology for “Toy Story” and other hit movies.

Yet purchasing Universal could be enormously risky.

“Apple’s core competency essentially is in delivering computing,” said analyst Chris Le Tocq at Guernsey Research in Los Altos. “This would seem to be a stretch, frankly.”

Enderle said Apple-Universal could falter like another celebrated computer-media merger, AOL Time Warner, because the individual parts don’t mesh well.

And analysts noted that Apple would be investing in a troubled and volatile business. Several big record labels are up for sale.

The industry has been battered by Internet piracy, in which computer users take music off the Web from file-sharing sites without paying for it.

Universal isn’t immune to the problem. Despite an artistic roster that includes the likes of U2, Universal’s operating profits slid 23 percent last year. It was Universal that first approached Apple about a deal, the Times reported.

“One of the reasons Vivendi is trying to get out (of music) is they’ve had problems,” Le Tocq said.

He noted that the Universal purchase could actually hurt Apple’s efforts to create a Web-based music service. Many record labels might now regard Apple as a competitor and balk at making their music available to the Apple service, he said.

A larger question looms: Will consumers who are used to pirating music be willing to pay Jobs for it?

Record labels, along with retailers such as West Sacramento-based Tower Records, have experimented with various fee-based Internet services. Those programs have so far yielded limited success, and there’s no guarantee that Apple could persuade music fans to start paying in droves for tunes.

Consumers “have to be convinced, morally and ethically,” that Web piracy is wrong, said Joseph Lensky of Edison Media Research in New Jersey.

On the other hand, an Apple-Universal marriage could be the breakthrough that creates an affordable, user-friendly Web music service that captures the public’s imagination, said analyst Phil Leigh of Raymond James & Associates in Florida.

“The technology is ready, and the consumer is not too stupid to use the technology,” Leigh said. “By owning one of the labels, (Jobs) can set the pace.”

Anything that “provides excitement in the industry” would be welcome news, said Kevin Cassidy, executive vice president at Tower. For one thing, he said, it could spark sales of digital music players — one of the consumer electronics items sold at Tower.

The merger could also be a tonic for Apple’s computer business.

“Apple recognizes that the way to make us buy computers is digital media,” Leigh said.

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