Who says Apple is a bloodsucker like Goldman Sachs? Pete Townshend

November 1, 2011

“Oh Wow,” as the late, great Steve Jobs might have said. Apple a “digital vampire”, sucking the blood out of the music industry.

How so? The sound bite comes from Pete Townshend, the Who’s prolific songster, and inaugural John Peel lecturer at the Salford Radio Festival.

The chances are we would never have noted the festival if it hadn’t been for Townshend, and never noted Townshend if it hadn’t been for the emotive “vampire” epithet.

It’s an echo, almost certainly deliberate, of what was said about Goldman Sachs in Rolling Stone a couple of years ago:

The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Powerful stuff, that few outside the investment community – and perhaps not all of them – would seriously dispute. But is the parallel seriously applicable to Apple, which thanks to iTunes virtually reinvented the music industry about a decade ago?

The Townsend thesis, in a nutshell, is that Apple has abused its now dominant market position. Indeed, he makes direct reference to banking (mal)practice:

Music publishing has always been a form of banking in many ways, but – in cooperation with record labels – active artists have always received from the music industry banking system more than banking.

Not so, it seems, in the iTunes era. Apple, whose “fantastic piece of software” Townshend readily acknowledges, does no more than provide the minimal services of distribution and paying royalties, while bleeding artists dry with its “enormous commission”.

Excuse me, you may be saying by now, wasn’t it ever thus? Isn’t the old rocker (well, Mod, actually) looking at what we quaintly refer to as the record industry with rose-tinted spectacles? It may have served him and his cronies well, but thousands of other deserving artists ended up on the scrapheap.

In fact, Townshend’s critique of the music industry (which is well worth reading) is much more searching than the “vampire” headlines suggest. But that doesn’t mean it isn’t wrong-headed.

To make Apple the villain of the piece may be mediagenic, but it’s also somewhat misleading. iTunes is a symptom, not a cause, of the problems afflicting the music industry. And it has, in its way, created a financial solution to those problems which, fundamentally, stem from the internet’s copyright-averse “free download” culture. Arguably, without iTunes or something very like it, artists – including old rockers – would be very much worse off than they are today.

Nevertheless, Townshend is surely right to point out that the Apple tariff is too high, and that the company gives relatively little in return. In his view this “return” should include a great deal more help at the seedcorn level, whether in the form of incubator finance, marketing, creative nurture or advice on the protection of copyright.

The old music industry may have been a corrupt, exploitative, shambles that occasionally stumbled on talent, but at least it was filled with entrepreneurs with a passion for the business. Today, that business is dominated by anoraks.

Are you a Googler or a Zuckerbug?

January 26, 2011

Think carefully before you answer. There’s a great deal more at stake than the passing satisfaction of an intellectual parlour game.

What we – consumers and advertisers alike – are being asked to debate is the future shape of the internet – the way we approach it, the way we use it. Up to now, it’s been pretty much a search-shaped universe, moulded around the success of its greatest information engine. Now we’re being asked to look at it a different way – the social network way – thanks to the meteoric success of Facebook.

Whoever wins the battle of ideas also scoops the global jackpot. Russian oligarch Yuri Milner and investment bank Goldman Sachs have already made their bet. They stand to be the biggest financial winners when (rather than if) Facebook becomes a publicly quoted company. But what about the rest of us?

Superficially, Google has little to worry about. It has just produced a record set of fourth quarter figures. To those who complain that it is, strategically, a one-trick pony, it can point to success on other online platforms. Video, of course, with YouTube; and more promising still, a potentially market-leading position in mobile with the aid of sub-brands Android and Chrome. What it does not get – CEO Schmidt’s recent enigmatic remarks about developing “serendipitous search – search results searchers didn’t even know they needed” notwithstanding – is social. An upstart rival has excluded Google from the market’s most dynamic area of expansion; from zero in 2004, Facebook’s global reach is now approaching 600 million.

Which brings me to my column, posted on marketingweek.co.uk this week, and its focus on the recently announced change in leadership at Google.

Leadership is one of the paradoxes of this sector. The products and services are highly sophisticated, the organisations which create them highly complex, but the leadership issue is often brutally simple. Continued success frequently comes down to the single-minded vision of a guru-like founder.

Zuckerberg: The $50bn leadership question

Looking ahead, that may well be Facebook’s defining issue as it moves inexorably towards public ownership, with all the grown-up demands that makes on a company’s leadership.

It is a frightening thought that one of the world’s most powerful brands is – and will probably remain – the brainchild of a 26-year-old genius with borderline Asperger’s Syndrome (to take a cue from The Social Network). His obsession with teaching the world to communicate electronically was born out of his own inadequacy at chatting up Harvard girls. Let’s see how he manages in the adult world of the capital markets, where you don’t always get your own way.

Is Publicis preparing a bid for Interpublic?

January 22, 2010

Can it be true? I hear that Publicis Groupe is looking at an audacious all-shares takeover bid for Interpublic.

Publicis is nominally fourth in the marketing services league, behind Interpublic, when ranked by global revenues. However, the gap has been closing steadily in the last year and they are now almost neck and neck. Study their market performance and you would hardly believe both have entered the same recession. Where Publicis, judging from its share price, has outperformed, IPG has significantly underperformed. The market capitalisation of the two companies eloquently tells the story. IPG is now valued at about $3.4bn whereas Publicis is worth $8.26bn, making it nearly two and half times bigger. We might add that, over the past year, Publicis’ position has been strengthened by the dollar/euro exchange rate moving in its favour (excepting bumps in the last few of days, of course).

But why would Publicis entertain such a thing, given all the turmoil it could cause? Imagine the account conflicts: the cars, the cosmetics, healthcare and technology accounts that would have to be sorted out…

A few ideas come to mind. First, IPG is temptingly vulnerable, whoever decides to have a tilt at it; and Publicis is better equipped than most. Despite Levy’s surface optimism about recovery, he knows as well as any other group chief that significant organic growth in the near future is a will-o’-the-wisp. With shareholders to appease, and assets cheap, another round of industry consolidation begins to look attractive. Never mind whether the acquisition is really earnings positive – or dilutive. With an astutely managed ‘merger’ no one can be certain for years to come. A big acquisition buys time and the benefit of the doubt (as Kraft well knows).

Second, Publicis has some unresolved business with Dentsu, the Japanese agency group with a 15% stake in the group. It has not been a happy arrangement. I noted, for example, tension between the two partners over the Razorfish acquisition last year. Acquiring IPG might be a way of diluting Dentsu’s influence by rebalancing Publicis’ portfolio. The Dentsu deal, in any case, comes to a close in 2012: Dentsu may want its money back. Dentsu and Publicis-owned Saatchi & Saatchi share a worldwide interest in the Toyota car account. Could there be a bargain to be struck there, for example?

Lastly, never underestimate the human factor. Publicis Groupe chief Maurice Levy is nearing the end of his long and successful tenure. He may wish to bow out on a high note. And this would certainly be a ‘C’ to crack the chandelier.

According to those in the know, the detail of any such bid would be managed by Isabelle Simon, senior vice president at the French global marketing services conglomerate. More important than the title is the fact that she is charged with acquisitions policy at Publicis. Simon has had a high-flying career as lawyer and financial whizz-kid, in both the United States and Europe. Her last job was as an executive director at Goldman Sachs, where she specialised in M&A and capital market transactions. She was poached by Levy last February. The telephone-number salary attached to her suggests he wasn’t thinking of a couple of cheap infill acquisitions.

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