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What the Muses Deign: “I liked the music so much, I bought the company”

By Porruka ( June 19, 2003

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Victor Kiam said it about Remington shavers, but it might be the song sung by Apple or RealNetworks about Roxio, depending on which recent rumor you believe. Roxio, which now owns the shell of Napster, has been mentioned as a takeover target in corners both mainstream and not-quite-so.

iTunes Music Service – a prelude?

When Apple launched the iTunes Music Service, the company promised a version for “that other platform” by the end of the year. The success of Apple’s offering on the Mac platform showed that, indeed, demand was there for legitimate, easy-to-use, easy-to-pay-for, online music. All of a sudden, other players in the space turned into also-rans, at least in the press coverage. After a brief lull where Apple’s initial success showed itself to be more than a simple launch flash, those other companies started ratcheting up activity to compete with Apple.

Microsoft, AOL-TW, RealNetworks, Roxio: The sharks are circling

It hasn’t taken long for the other players (or wannabe players) in the online music space to adjust their plans. Microsoft, after previously joining with pressplay in 2001, is preparing a counter-attack based on, what else, DRM technology in the Windows Media suite.

AOL-Time Warner, after rumors swirled that they would officially participate in Apple’s service, appears to be going their own way.

RealNetworks, the home of subscription services such as RealOne, recently announced it would buy, home of the Rhapsody online music subscription service. Also, the company just priced $100 million in convertable notes for, as the company put it in the press release:

...general corporate purposes, acquisitions, other strategic transactions, including joint ventures, and working capital requirements.

Roxio, for its part, is building its own service, buying the Napster name and the pressplay service to relaunch a service with the Napster brand (and, certainly the company hopes, some of the Napster following).

Downloads, downloads everywhere, but not a burn in sight?

One (of the many) hot topics surrounding the subscription services is the issue of burning CDs with the music that you’ve paid for. It’s generally accepted that the restrictions on the downloaded music have been such that it’s still easier and, in some respects, better, to get the music from unauthorized sources. Apple’s service is different in that respect with the integration of the music service with iTunes itself, complete with (albeit slightly restricted) abilities to move the music to different devices and to burn permanent copies.

Any solution on the Windows platform, from Apple or another company, should include similar capabilities if it’s going to ride the same wave of popularity as the iTunes service. Enter the flip-side of Roxio.

For those who don’t know, Roxio is also the maker of Toast (CD creation software for the Mac) and Easy CD & DVD Creator (for Windows), as well as a host of video editing and creation software for Windows. Put these offerings together with the new Napster service and the possibilites immediately become clear, though by no means certain.

Apple? RealNetworks? Others?

Would Apple buy Roxio? It really depends on how close to market iTunes for Windows (or whatever solution Apple plans on using) is. Apple has a limited time window to get iTunes to the Windows platform before the established players catch up. Also, any iTunes service Apple offers on Windows that doesn’t allow similar use of the music isn’t likely to be as successful. At this point, even though Apple has QuickTime for Windows for the playback aspects, the burning portion would have to either come from new development or a partnership/acquisiton. Roxio would not only give Apple the foundation it needs (and quickly), the fringe benefits of having control over Roxio’s other products too might be enough to sway the argument.

Other companies are likely to notice the same issue, that easy music CD creation is going to be essential to competing with iTunes. For that same reason, Roxio might be a target for the rest of the online-music service field. One in particular, Real Networks, would be a potential suitor with its own new service and a need to compete with Apple (as well as Microsoft). Fresh cash and an open opportunity make Real a likely suspect, though integrating pressplay/Napster and Rhapsody might be difficult. Also, the consumer software aspect of Roxio would be a double-edged sword, providing both benefit of local storage management, but bringing with it the headache of entering the consumer software market, something new for RealNetworks.

What about the other players, like Yahoo or Microsoft? Microsoft, while having no concern for the money, probably doesn’t need the difficulties that would come with a Roxio purchase (more gratuitous Napster lawsuits, anyone?) and probably wouldn’t gain much in the way of an advantage from the burning technology. Yahoo, is a possibility, but its an outside chance given how the company is centered around services; actual software production and distribution would be a new (and possibly challenging) area for it to enter. AOL is no stranger to software distribution, but it has, in recent years, shown a definite preference to partner for core software services rather than build/buy it themselves.

So, what’s going to happen?

As expected, company spokespeople from both Apple and Roxio had no comment to make when asked about the rumors. The crystal ball is murky on the subject, though many analysts expect further consolidation of online music services.

While any of these companies might have a reason to buy part of Roxio, none has a good reason to buy all of Roxio. It seems that without more extreme speculation such as Roxio selling part of its business (not likely, given that the company specifically targets revenue diversification with the re-launch of Napster) or that a multi-company deal is in the works, this isn’t in the immediate cards.

Of course, any of these companies could pop up tomorrow and announce a deal, but if they do, watch it closely. There’s likely to be more to it than meets the eye.

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