Could Microsoft or Apple Be the Future of EMI?

Like all good media dinosaurs EMI Records is in no hurry to meet the future. The status quo is just too familiar and comfortable; better hang onto it as long as you can. Last week EMI postponed the future just a little bit longer by refusing a $4.1 billion takeover bid by WMG and breaking off discussions with online music services over the possibility of selling DRM-free downloads.

You would think a company that’s rapidly losing market share and issuing profit warnings every month would be taking drastic steps to turn things around, but that’s clearly not the case with EMI. As a card carrying member of the “big four” EMI is one of the last of a dying breed. I’m pretty sure there’s something in The Endangered Species Act that prevents the company from actually going bankrupt.

There’s a chance that EMI’s head-in-the-sand approach might actually work to the company’s advantage. It’s possible that WMG’s offer could pale in comparison to what a technology company like Microsoft or Apple might pay to buy control of EMI.

EMI’s demand for an large up-front payment in order to license its music for DRM-free download is just the latest example of the difficulties that technology companies have had in dealing with the major labels. Last November UMG did everything but blackmail Microsoft into paying a per-device fee just days before the Zune product launch. Then there’s the ongoing battle between the majors and Apple over the flexibility of iTunes pricing.

At some point companies like Apple and Microsoft are going to realize it might actually be easier and cheaper to buyout the major labels than it is to continue negotiating with them every time a new product or service is launched.

A Microsoft-WMG deal or an Apple-EMI deal makes a hell of a lot more sense than a WMG-EMI deal does. The last thing the music industry needs is more consolidation among the major labels. While a WMG-EMI merger might have improved earnings for the combined company, it would have done nothing to solve the real problem the music industry is facing — a lack of innovation.

Technology companies are in a position to deliver real innovation when they can release products and services without having to negotiate every new development with labels who are more concerned about propping up a archaic business model.

The next logical question is what would happen to iTunes if Microsoft were to buy a major label. A Microsoft owned EMI could be just as difficult for Apple to negotiate with. Except that, like Apple, Microsoft has indicated they realize that DRM is a limiting factor in consumer adoption of digital media technologies. If Microsoft were to purchase EMI the most subversive thing they could do would be to give Steve Jobs exactly what he’s asking for — DRM-free music.

Besides, if Microsoft were to buy one of the majors it probably wouldn’t be long before Apple followed suit. The only question is whether or not Google and Yahoo would jump into the bidding as well.

In a decade or so it’s possible the big four might be Microsoft, Apple, Google, and Yahoo.