Why doesn't Apple Computer just buy Apple Corp?

March 27, 2006 6:51 PM

So Apple Computer is being sued again by Apple Corp, and it is likely that Apple Computer will settle. Question: Why doesn't Apple Computer just outright make an offer to buy Apple Corp? (And while they are at it, buy their music collection as well?)
posted by phyrewerx to technology (22 comments total)

Well, I don't think it's up for sale. It's owned by a Swiss company, and is basically still under the control of Neil Aspinall (former Beatles manager).

I don't think money matters especially to the people involved in this game, particularly since McCartney was burnt by losing the publishing rights to his own songs to Michael Jackson, and is even less likely to want that to happen again.
posted by bonaldi at 6:57 PM on March 27, 2006

My guess is that Apple Computer does not see itself as a music publisher. If you really want to talk about The Beatles (and The Stones) being burned, then no discussion is complete without bringing Alan Klein into the conversation. McCartney "lost" the publishing rights back in the 60s, he and Lennon always received their writer's share. Although Jackson outbid McCartney when the publishing catalog was put up for sale, I wouldn't characterize it as being "burnt."
posted by anathema at 7:15 PM on March 27, 2006

By "lost" I mean sold.
posted by anathema at 7:16 PM on March 27, 2006

Apple Computer may well hold fast this time. Its last agreement with Apple Corps prohibits it from producing music content, but not from offering conduits to music content. Apple Computer contends that iPods and iTunes are no more than conduits, and I think that is a position that will stand up.
posted by megatherium at 7:31 PM on March 27, 2006

I asked myself this very question just this morning. The only thing I could imagine (other than not being able to make a successful offer) would be a) it would distract from Apple's core (entertainment) business of delivering content that's made elsewhere; b) should something happen to Apple (Music) because of Apple (Computer)'s inattention because of different business goals, it could be a PR nightmare; and c) maybe it's just personal.
posted by socratic at 7:33 PM on March 27, 2006

Further more, dude - think of the royalties and the earning power those sound recordings have.

I mean, sure, Michael Jackson owns the actual copyrights on the songs - but the sound recordings, from oldies stations alone, would generate in the billions, no joke.

So, as most companies are sold, they take the potential earnings for the next 10 years, and add a certain amount for 'goodwill' - the amount the company is worth just due to it's good name and such - and then that's the price.

I'd imagine that Apple Computer's stock, cash holdings, and anything else wouldn't even be enough to scratch a down payment on the rights to these songs, especially since there's another 75 years on the songs, even if Paul McCartney were to be atomized by a bus tomorrow.

Besides - I did research on this for a college class I was taking; Apple Computers has REPEATEDLY agreed in these settlements to not use the Apple name for music related things - while this was a weak argument in the early days (you have a sound card, and we make sounds!), it's damn near no-brainer now.

If you aren't willing to fight a court case to prove how stupid and baseless this claim is (and it is), and you settle to save money and agree not to sell music recording related products, then you are bound to that contract.

They should have grown some gonads and fought this back in the early eighties, and now the chickens are home to roost.
posted by plaidrabbit at 7:34 PM on March 27, 2006

Yah, but I thought it could be ruled that since Apple Corp and Apple Computer both now serve music content, Apple Computer's brand might weaken Apple Corp's (I know in reality if anyone believes one brand can weaken the other, it would be Corp harming Computer's, but Corp developed their brand first).
posted by phyrewerx at 7:35 PM on March 27, 2006

(that was in response to this)
posted by phyrewerx at 7:38 PM on March 27, 2006

via the Times:

The companies clashed again in 1989 after Apple Computer introduced a music-making program. The computer company settled in 1991, for $26 million. Apple Corps was awarded rights to the name on “creative works whose principal content is music” while Apple Computer was allowed “goods and services . . . used to reproduce, run, play or otherwise deliver such content”.

Emphasis mine.

IANAL, but I think this is the angle Apple Comuputer will be playing -- the iTMS is, after all, a way to deliver musical content, yes?
posted by danb at 7:41 PM on March 27, 2006

Dan, I think the argument is going to be about the difference between "local delivery" (i.e. playing) versus "commercial delivery".

But that's why God gave us lawyers.
posted by Steven C. Den Beste at 9:38 PM on March 27, 2006

plaidrabbit: Apple Computer has a $50 billion market value. Last year it generated $1.3 billion in net income and has nearly $9 billion of cash on its balance sheet. And on top of all of that, it is a going-concern whereas the Beatles are no longer making music. In my quick searches, I see that Sony's holdings in one-half of the Beatles catalog has an estimated value somewhere in the area of $600 - $1 billion and generates up to $45 million a year in income. Does Apple Corp's licensing rights generate more income than the $90 million a year generated by the catalog? The income stream would have to be at least 10x larger than that to even come close to eclipsing the value of Apple Computer. The Beatles assets are incredibly valuable, but buying them outright would be overkill for Apple Computer, but it is well within the realm of financial possibility. The idea that Apple Corp may be worth more than Apple Computer seems like a drastic overstatement.
posted by mullacc at 9:44 PM on March 27, 2006

Purchase them and then give them away on iTunes. :-)
posted by five fresh fish at 9:55 PM on March 27, 2006

I forgot to link to the source for the numbers on the Beatles catalog. Here it is (near the end).
posted by mullacc at 9:56 PM on March 27, 2006

Um... Since when does Apple Corps own the Beatles catalog? Sony & Michael Jackson do, and both have nothing to do with Apple Corps. (Unless I'm missing something huge, here.)

Also, please note that the full name is Apple Corps, a play on "apple core." (The Brits must think this is smashingly hilarious.)

In fact, I'm really not sure what assets Apple Corps still maintains, besides a nice litigious history with Apple and, officially, rights to the Apple name when it comes to the music, as mentioned above and in the current court case.

All of this about Apple Corps making billions on the Beatles catalog is completely beside the point. They don't own the catalog. It has nothing to do with this.

Meanwhile, perhaps they don't want to sell simply because they believe the vehicle for litigation will be worth more in the future as Apple diversifies and continues to try to skirt the previous agreements. Two settlements have already been paid out, so why not have at it for a third, and beyond?
posted by disillusioned at 4:00 AM on March 28, 2006

Publishing catalogues and record airplay =! the same money.

For example - I decide to cover 'Lovely Rita Meter Maid'. I pay eight cents (or whatever the Copyright Arbitration Panel sets for the time) for the song each time it's sold to Sony/ATV. I can also pay lower if Sony/ATV agrees to let me license the song privately. And that's pretty nice, as there are still a butt-tonne of Beatles songs/covers/etc being created and sold.

However - on each piece of recorded music, there exist two separate copyrights - the copyright of the lyrics and musical composition, and the copyright of the actual sound recording. The people at Apple Corps get the money when the song is played - mostly through ASCAP/BMI (I don't know which they are on, but it's whichever one is teamed up with the British counterpart.)

From what I remember (and this part may be incorrect, my apologies in advance), it's also .08 a play for music, or something like 1.5 cents per minute for each song over 5 minutes. With those numbers, in the US alone, let's do the numbers:

The average modern rock/oldies station may play the Beatles four times in one day. That's a really low estimate, but lets just assume that they do.

We'll assume that there are roughly 20,000 radio stations all over just the US, which is also probably low as well (I tried to find total genre licensing at the FCC website, but they're too busy telling me how to report obscenity on the air to actually, I dunno, GIVE ME SOME INFO!).

So, in any give day, the guys at apple corp are making 64,000 a day just on the US market. At this low estimate, that's $23.24 million a year off of four plays a day; god knows some stations around here play them four times every hour.

This is where I get my numbers from. Add in the rest of the world, and I imagine that it'd be right at/over a billion a year. Using the formula I stated above, that's $10 billion just to buy it, plus any goodwill that they'd claim the company had.

So, Apple Corps may not be larger, and may even be a bit smaller - but again, without bankrupting themselves, they couldn't acquire Apple Corps (even if it was for sale) without mortgaging themselves into hell and high water.
posted by plaidrabbit at 4:04 AM on March 28, 2006

plaid, I don't think your numbers are good.

The US numbers may be all right; I think you may be OVERstating the plays/day if anything. But I'll grant your figure on US royalties because I don't think my guess is any better than yours.

However, extrapolating the US radio market at 23 million a year, to a worldwide market of a BILLION a year, is lunacy. mullacc up there has hard numbers that say '45 million a year' total.

Other countries don't pay anything like ASCAP rates (if they pay anything at all), so your numbers and his could jive perfectly. The US is the major market, and the whole rest of the world together roughly equals the US alone.

Looks to me like Apple Computer could swallow these guys without even blinking.
posted by Malor at 4:33 AM on March 28, 2006

Ahh, thanks for that explanation, plaidrabbit.

I really wasn't grasping how they were generating income on the songs still, with the catalog in possession of Jackson/Sony.
posted by disillusioned at 4:45 AM on March 28, 2006

There are *lots* of cheesy jokes in this long-running story. I would recommend Wikipedia on the Sosumi sound. I kind of like the bizarre notion of a team of over-paid lawyers pawing over everything Apple does to determine whether it is "musical" or not.
posted by rongorongo at 6:49 AM on March 28, 2006

I was certainly aware that Apple Corp's assets were different than the "Beatles catalog", but I was working from the assumption that the income generated from the catalog is either greater than, or at least comparable, to that generated by rights to the sound recordings.

The estimated income from the catalog is $90 million a year ($45 million is the Sony half from the article I linked to). If plaidrabbit's math is reasonable and the sound recordings make $23 million a year in the US, the total income is probably not greater than the $90 for the catalog. If you value an income stream of $90 million as a growing perpetuity, assuming 3% annual growth and a 5% risk-free rate, the total value is about $4.6 billion ( (90*1.03)/(.05 - .03) ). That is an extremely aggresive valuation.

Using the formula I stated above, that's $10 billion just to buy it, plus any goodwill that they'd claim the company had.

Goodwill is the different between fair value and book value. The $10 billion would represent fair value and thus would include goodwill. If we assume the minimum price is $4.5 billion and the max is $10 billion, it is still WELL within Apple Computer's acquisition capabilities. Apple Computer is worth $50 billion - it would only have to issue new stock worth 20% of the current outstanding shares. That's an easy transaction to execute. Apple Computer would have to come up with some good answers about why it over-paid for a non-strategic asset, and at that valuation they are likely to see earnings dilution which will cause a small decline in share price, but the transaction would still be easy from a financial perspective.
posted by mullacc at 7:09 AM on March 28, 2006

I think these kinds of disputes are silly (but that doesn't mean they aren't still going to be fought). Trademarks are intended to provide a distinct identity for companies and the goal in protecting them is to protect the value of the brand and prevent confusion in the eyes of the public (the customer). If you choose a word out of the dictionary (such as "Apple") it seems to me that you have less legal cover than if you pick a made up name "Kleenex". Even then a word like "Kleenex" or "Xerox" can fall into the public domain through use.

It seems to me that Apple Corps would have every right to protect that name "Apple Corps" but no real rights to prevent the use of the individual parts "Apple" or "Corps".

I also think that there is little chance of confusion in the eyes of the public and that if you said "Apple" (by itself) to 1000 people not one of them is going to think of "Apple Corps" first.

By settling out of court in the past, Apple Computer has prevented the issue above from actually being ruled upon and this has bought them time. Settling a case is not necessesarily an indication that one thinks they are going to lose a case. They may feel that it would cost more to fight (in terms of legal costs or hits on their stock price with investor nervousness over the uncertainty).

I (frankly) don't think that Apple Corps has a case and the time that Apple Computer has bought (and all that has happened over the years) puts them in a position of strength to finally have the question answered once and for all.
posted by spock at 7:40 AM on March 28, 2006

phyrewerx posted "And while they are at it, buy their music collection as well?"

I think Apple is too smart to fall into the trap that Sony is in where their movie and music business keeps shooting their hardware business in the foot. Sony would probably own the MP3, PVR, and set top DVD recorder market if they hadn't been constrained by their entertainment division.
posted by Mitheral at 7:53 AM on March 28, 2006

Mullac - I stand corrected. Your explaination is quite more concise than mine was, and more to the point, a little more buisness savy.

Sadly, my degree was more focused on the industry and how it acts and legal aspects, rather than mergers and aquisitions. :)
posted by plaidrabbit at 7:55 AM on March 28, 2006