Disney Investing in iTunes IPO?

[MacRumors]

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MacDailyNews republishes (http://macdailynews.com/index.php/weblog/comments/8552/) an unsubstantiated rumor from Briefing.com (http://www.briefing.com/GeneralContent/Platinum/Active/ArticlePopup/ArticlePopup.aspx?SiteName=PopUp&ArticleId=IN20060210111527AAPL) that Disney could be interested in purchasing a stake in iTunes, which would then spin off into its own publicly traded company via an IPO.
"We are hearing some chatter this morning about Apple Computer (AAPL) that we can't confirm, but found interesting nonetheless. The rumor is that Disney (DIS) could buy a stake in AAPL's iTunes, which could then be a first step towards an iTunes IPO."

[rdowns]

Seems like wild speculation. An iTunes spin off; what about the iPod? Were Apple to do that, their stock would take a severe beating.

[stefman]

This could be Apple's way of licensing it's FairPlay technology and providing iTunes with some "external" revenue.

Apple would have to keep making the iPod the coolest player on the planet in order to maintain it's dominance.

I might be wrong, but there's no denying that one day Apple will have to open iTunes or the iPod...either voluntarily (better) or by force (worse). Market dominance like that doesn't go unnoticed too long.

[samh004]

Could they avoid being sued by certain parties in relation to the word Apple and music by making iTunes it's own entity ?

That's the first thing that popped into my head.

[Little Endian]

It is much to soon for Apple to spin itunes off right now. In a couple of years or so it might be a great idea but right now itunes can do fine under Apple. Apple still needs complete control of itunes to maintain dominance in the MP3 player market at least for now it does.

[CaptainHaddock]

An IPO makes little sense. iTMS exists to sell iPods and provide a complete computing solution on the Mac. It doesn't exist to make money, and it would turn into just another failed music store on its own.

[mdavey]

Seems like wild speculation. An iTunes spin off; what about the iPod? Were Apple to do that, their stock would take a severe beating.

Not necessarily. Apple wouldn't have to transfer control of their existing iTunes music store or iTunes.app application to the spin-off company.

They could simply transfer the sourcecode to the app and the sourcecode to the iTunes service to the spin-off and then be the first licensee. Rights to the content in the Apple iTunes music store wouldn't transfer, either.

Think of it like Amazon.com. Barnes&Noble, Target, Virgin Media and many others are powered by Amazon.com E-commerce Platform. Eacho store has its own look and feel, and corporate branding but underneath it is a fork of the code from Amazon.com that the site is running upon.

And Apple would likely retain a majority stake in the spin-off, so would actually receive a revenue stream (in some form) from license sales of the iTunes platform.

[thejadedmonkey]

Could they avoid being sued by certain parties in relation to the word Apple and music by making iTunes it's own entity ?

That's the first thing that popped into my head.
Same here.

[mac-er]

This has to be the wildest rumor I have ever heard.

iTunes its own company? That has to go against everything Apple is about.
If that was true, they might as well spin off the Mac division, the OS division, and the software division.

[Norse Son]

Were Apple to spin off the iTMS it would pose challenges for any media company - music, video, TV shows, etc. - that wished to sell content through the service, especially if Disney were to own a stake (however large) in iTMS... They'd have to ask themselves, "What kind of preferential pricing & revenue is Disney making off our competitor-status product?"

Also, any media company, especially the major "greedy" music labels who invested in it could try to pressure iTMS & Apple to raise prices, tier the prices, limit the bit-rate, push for certain content to be subscriber-only, etc. And it would do nothing to move iTMS closer to being a "border-free", truly-global music & media bazaar.

The latter is where I believe iTMS is headed, where iTMS and, more importantly, its global customers, are no longer restricted to what's available in only their home countries. I see the day coming, maybe by next MWSF, where we can preview & purchase content from any of the various international iTMSs.

As it stands right now, Apple - and, if IPO'd, the iTMS - sees very little actual profit from iTMS' sales. Most of it goes to the record labels and/or movie/TV studios. Apple makes its money from iPod-related sales, not off the media itself.

[mdavey]

This has to be the wildest rumor I have ever heard.

iTunes its own company? That has to go against everything Apple is about.
If that was true, they might as well spin off the Mac division, the OS division, and the software division.

Were Apple to spin off the iTMS it would pose challenges for any media company - music, video, TV shows, etc. - that wished to sell content through the service, especially if Disney were to own a stake (however large) in iTMS...

Again, consider the possibility that Apple will just spin out the iTunes ecommerce platform (software to build a web store) rather than spin out the actual brand and their current instance of the store.

This "iTunes E-commerce Platform" subsidary will build branded web stores for retailers in just the same way that Amazon Services builds branded web stores for competitors to Amazon.com.

Just as Barnes & Noble still choose the Amazon E-commerce Platform even though they are competitors of Amazon.com (and Amazon Services sell a license to use even though Barnes & Noble are a competitor of Amazon.com), so will media companies likely choose to get the iTunes spin-off/subsidary to build their web store even though Apple and Disney are backers.

They'd have to ask themselves, "What kind of preferential pricing & revenue is Disney making off our competitor-status product?"

Disney wouldn't get preferential pricing - the store content would belong to "you". The iTunes spin-off would likely charge an installation/set-up fee, a customisation/consultancy fee and an on-going licensing fee (just like Amazon Services does) and presumably both Apple and Disney would see some kind of revenue stream as backers (whether that would be through share issues, dividends, licensing revenues or some other profit-sharing model).

[Peace]

This scenerio could happen if Apple should lose any lawsuit against the beatles..

It would be bad though.imho..
No more $.99 songs thats for sure..The RIAA would love to see this happen.I'm not sure how the app would go though..

[bwintx]

Um, Apple, if this is true, I have one word for you:

Claris.

OK?

[bigandy]

some people hate slow news days around here so much that they spark this as a rumour?

dear oh dear.

:rolleyes: :rolleyes: :rolleyes: :rolleyes:

[travvy49423]

I'm going to ask the question I know many others are wondering but affraid to ask for fear of looking stupid...

WHAT THE FRICK IS AN IPO?!?!?!

I'm pretty sure it's a basic journalistic convention to define an acronym the first time it's used in an article unless it's commonly used... like, for instance, FBI or USA.

Granted, I just googled the term and now know what it means, but a website geared toward general mac users shouldn't expect it's readers to know financial lingo.

That's my two cents.

[Wrock]

WHAT THE FRICK IS AN IPO?!?!?!


Initial Public Offering.

[zapp]

Initial Public Offering.

Can Apple (a publicly traded company) offer a piece of its company in a IPO?

[x86isslow]

Can Apple (a publicly traded company) offer a piece of its company in a IPO?

I believe this is very common- see Motorola spinning off Freescale.

[eSnow]

I doubt Apple would spin-off iTunes (the software) as a company. Since they don't charge for the software, the company would have no revenue stream.

More likely, they are thinking about spinning off the iPod, iTunes and ITMS into a publicly traded company in which they still hold the majority. Cash in on the iPod success while it lasts and make a heap of money.

[brentonbrenton]

some ppl were worried about apple becoming a music company.

what do u people want?? now they rumor dividing it from their computers, and ppl are all, oh no.

i think this is perfect. apple isn't stupid, they'll maintain controlling reins. maybe an itunes record label will be next to come straight afterwards.

[Stridder44]

...maybe an itunes record label will be next to come straight afterwards.


Oh God that would rock.

[dguisinger]

I believe this is very common- see Motorola spinning off Freescale.

McDonalds just did the Chipotle IPO as well

[Stridder44]

McDonalds just did the Chipotle IPO as well


*weeps*

[bluebomberman]

This sounds like a bad idea...it'll be like the stupid Palm split between PDA hardware and the OS.

[Psychic Shopper]

Why did Disney pay a riduclous amount of money for Pixar? i don't know, why did Pixar sell? They were smart enough to take the money ( or stocks as it were). Why would Apple sell Itunes to Disney? If Disney is stupid enough to buy a company Steve Jobs admitted doesn't make much money, then Apple is smart enough to sell itunes.

[dguisinger]

Just a note, if Apple spun off iTunes but kept a majority share, it could possibly remove the limitations that they are currently being sued over by Apple Records..... once they start doing business under a different name the lawsuit for ongoing practices is moot and only has an effect on previous activities.

[mkrishnan]

This sounds like a bad idea...it'll be like the stupid Palm split between PDA hardware and the OS.

Heh...I was kind of thinking the same thing. So then iTunes spins off, founders, and then eventually, Apple marries their hardware to a WMA store, and... oh, wait. Oh, god. :(

[sPAULj]

Heh...I was kind of thinking the same thing. So then iTunes spins off, founders, and then eventually, Apple marries their hardware to a WMA store, and... oh, wait. Oh, god. :(

RIGHT, because apple's totally going to run their store with WMA. :rolleyes:

Everyone needs to calm down. With a IPO, Apple would still be in control of the company while still being able to expand iTunes beyond it's current arena. That means, iTunes could have it's own record label and expand to greater things, and will keep "Apple Inc." from coming "iPod inc." Then again, if iTunes didn't do this, well things would go on as normal wouldn't they?

I'd like to mention also that the reason why PALM did so ****** when it spun of it's OS is because it's developers didn't develop and things stayed the same, not to mention the companies lost a lot of connection when that happened.

[Gasu E.]

Frst of all, if there is any truth to the rumor, the spin-off would include both ITMS and iTunes. You can't have an iTunes-only spinoff as it would have zero revenue.

Secondly, although I realize people here are obsessed with the stupid Beatles lawsuit, a much more likely reason for the spinoff would be as a prelude to opening up ITMS and ITunes to non-Apple MP3 players. Of course that would represent a big change in Apple's business model, but they may feel the need to switch to a Windows-like strategy in the long run in order to avoid eventual marginalization, a la Mac. Apple would be remiss if they were not considering opening up ITMS/iTunes as a possible future strategy.

[mkrishnan]

RIGHT, because apple's totally going to run their store with WMA. :rolleyes:

I was being FACETIOUS. ;)

Still though, I think the fact that no one believes iTMS is particularly profitable, even while Apple owns it, is a relevant issue. I don't know if the transition to video is helping. But in the past, the consensus opinion was that iTMS was a close-to-loss-leader for the iPod.

[slu]

I doubt Apple would spin-off iTunes (the software) as a company. Since they don't charge for the software, the company would have no revenue stream.


Uhhh, Content?

[512ke]

If they spin off iTunes, would current stockholders (like me) get shares in the new company?

512ke

[zeppiecr]

If I-tunes is spun off I think you would see Apple hold most of the shares so they could retain voting rights and still run the company in the right direction. Also maybe they spin it off to give company's like Disney and Warner access to more revenue then their 99 cents a song and give them shares at the IPO.

The ITMS is highly profitable as there really isn't any overhead. This would effect their current shares in a positive way as well. In a true spinoff existing Apple share owners would aquire some shares to the new company. But some spin offs like chipotle original share owners don't aquire any shares in the new company (McDonalds->Chipotle). Spinoffs are almost always good.

[mkrishnan]

The ITMS is highly profitable as there really isn't any overhead.

Well... depends on how you look at it. Profitable for whom? Apple hasn't released the numbers, but the consensus is that they pay almost as much for licensing of the content they distribute to us as we do for our downstream license. That is, almost all of their revenue gets paid back to the labels. At least, they've essentially admitted this in the past.

Forbes hinted (http://www.forbes.com/technology/2005/03/02/0302automarketscan13.html?partner=rss) that iTunes might get profitable in the future. But it's a hockey-stick graph at present.

Especially considering the constant rumor that the record labels want to re-negotiate for even higher prices. And Forbes doesn't really explain why or how Apple achieves lower operating costs, when almost all of the operating costs are speculated to exist in the form of buying licenses.

And even on top of all of that, Forbes' predictions of iTMS' profit capability come in at a margin that's lower than Apple's overall margin. Nice.

I don't see how any of that would be different if another entity owned iTunes or if iTunes was publicly traded.

But more power to them. As long as the store gets better, and the iPod gets better, and Macs get better, I have no complaints. ;)

[zeppiecr]

Good points, I agree

[d.perel]

Seems like wild speculation. An iTunes spin off; what about the iPod? Were Apple to do that, their stock would take a severe beating.
And then we could spin off the whole Mac business also! I'd hope to see our profitability increase by focusing on the core business of mighty mouse production.

[adk]

So wait, I'm confused.... if Apple were to spin off itunes into its own IPO, apple could still control it? I don't know that much about business (yet) but wouldn't two publicly traded companies doing that equal collusion? I mean, limiting music purchased from ITMS to only be put AAPL's ipod doesn't sound too free market.

[ShavenYak]

Without even having seen this page 2 rumor, I was pondering something this morning. If Apple divested itself of the actual store, the RIAA/MPAA/etc. would no longer have any direct influence over Apple's hardware and software decisions. Apple could let iTunes sharing go across routers, let iTunes be able to copy music from shared libraries or from iPods, and so forth, with less interference. Fairplay would still protect the labels' copyrights, and the decision to sell or not to sell on iTMS would be between them and iTMS. Apple could license Fairplay to other music stores (imagine if Rhapsody or Napster became iPod friendly :eek: ), iTMS could sell PlaysForSure tracks (but why :rolleyes: ).

Apple would also be off the hook on the Apple Records lawsuit - I didn't think about that aspect of it. Apple and iTMS separately might just be worth more than they are together. I'm sure Apple and Disney would both own some shares in the new iTMS company, and who knows, Jobs might function as CEO of both iTMS and Apple, at least for a while. I can't really think of anything negative about this arrangement.

It might even make sense for .mac and the iPhoto book and print ordering functions to be taken over by the new company, making it sort of a 'digital lifestyle enabler' web services company that supports Apple's hardware and software.