Apple's revenge of the nerds is brutal and will leave us all poorer

US Outlook

Apple’s new music streaming service will go live on Tuesday after a launch that has been, by its own lofty standards, something of a farce. Initially the company announced that it would not pay artists a dime for the first three months of the service, a decision it reneged on when pop starlet Taylor Swift stomped her feet and got upset about it.

Having Taylor Swift on your back is apparently too much weight for the world’s largest company to bear, even if the cynic in me wouldn’t be surprised if the farce was planned and Ms Swift’s intervention was about as heartfelt as most of her career has been. Make no mistake, Apple and Taylor Swift are all about business.

A dime is about right too. Thanks to Ms Swift, we are being asked to believe, Apple will now pay a whopping $0.002 per stream before tax, meaning that one million listens will result in a cheque for two grand to be split between the artist, the label and the tax man. Rubbish money in it for superstars like Taylor Swift, peanuts, and rotten ones at that, for virtually everyone else.

The original message Apple sent the music industry was crystal clear – your work is worthless compared to ours. The geeks have inherited the earth, and their revenge on the cool kids is brutal. So long as Apple is making money, the input put into creating the art it is selling or giving away has no monetary value. Zip. Nada.

Apple Music, the catchy name for the tech behemoth’s streaming service, seems to differ from other streaming services by virtue of the fact that it adds to Apple’s already bulging coffers and not much to anyone else’s. Other than that, it’s hard to tell what makes it any different but sadly it being Apple is enough for most people.

It’s probably unfair to highlight Apple’s part in turning the music industry upside down. Napster did it first and the marketplace is now crowded like an 80s student disco floor, minus the spilled Snakebite and fag butts. Pandora and Spotify do the same thing and pay artists equally pitiful amounts (although strangely the latter still not enough to satisfy Ms Swift).

Give it a year and Apple’s music service might render its competition to the status of historical footnotes. The customers Apple wants, those that are willing to pay a monthly fee, will have to choose between Apple, Pandora and Spotify, and most will choose Apple. No competition rarely ends well.

The more Apple dominates the more it resembles a cult, with Steve Jobs an L. Ron Hubbard-like presence whose power grows ever more mythical. It gives me the creeps almost as much as the people who work in Apple’s stores give me the creeps.

On top of its power over zombie consumers and its cult-like status, Apple is also sitting on just short of $200bn in cash – it could buy IBM and still have $35bn sitting around doing nothing, probably more than enough to buy Greece. The vast majority of its cash is in offshore tax havens, so bringing it home and actually doing something productive with it means paying taxes, and Apple won’t have that. What a waste.

Apple will probably bring its Midas Touch to the music streaming industry eventually and we will all end up worse off – the story of King Midas did not have a happy ending.

Carl Icahn sells out of Netflix – is this the top?

“Legendary” investors are ten a penny on Wall Street, most so legendary that nobody outside their own office has heard of them. Carl Icahn is one of the few who fit the bill, and if technology punters have any sense they will follow his lead on tech stocks and bank their profits sooner rather than later.

Last week Mr Icahn sold his stake in Netflix – approximately 1.4 million shares – having bought it when the stock was trading at something like $50 a share. It announced a 7-for-1 split on Wednesday, sending the stock to $706. According to Bloomberg, Mr Icahn trimmed his position in several stages as the stock surged, leaving him with a profit in the region of $1.6bn over the life of the trade. Pretty good going.

But what does it say about the rest of the market? Mr Icahn, who of course announced the sale of his Netflix stake via Twitter, went on to say that the market is “extremely overheated”. Mr Icahn has been in the game for long enough to know the value of leaving something in it for the other guy, but Netflix’s astronomical valuation (the stock trades at over 200 times forecast 2015 earnings) suggests that there is very little meat left on that particular bone.

Almost everyone on Wall Street is willing to admit, in private at least, that there is a tech bubble that has just as much bursting potential as it did in 2000. What most believe is different is that this time around there are enough stocks trading on realistic valuations, including the aforementioned Apple, to make the bloodbath more of a trickle when it comes.

Mr Icahn recently upped his target price on Apple to $240, almost double its current price. If he has that right from here then he really does deserve the “legendary” label.

ObamaCare decision called correctly by Wall Street

Just as Wall Street predicted, Supreme Court Justices Anthony Kennedy and John Roberts voted against the deeply-flawed challenge to the Affordable Care Act, or ObamaCare to give its brand name, preventing chaos in the American healthcare market.

That wasn’t really any surprise, considering the signals the market had been giving off for weeks. As this column mentioned last week, consolidation in the health insurance industry was the clearest possible signal that the markets did not expect the Supreme Court to strike the law down. The market might sometimes get it wrong, but more often than not it gets it right.

Onwards, then, to a bout of consolidation that will result in hundreds of millions of dollars for investment banks and executives, and worse coverage and less choice for consumers. ‘Merica!