updated 06:05 pm EST, Tue March 8, 2005
Apple vs. Sony vs. Napster
Despite new and Napster, Merrill Lynch maintained its 'Buy' rating on the stock, says that it does believe that either announcement will impact Apple. In a research report released today, analyst Steven Milunovich believes that Sony's new MP3 device will make it a "serious competitor," as they are priced similiarly to Apple's iPod shuffle line, but also offer a small LCD screen and battery life of up to 70 hours on AAA batteries. "We believe these are likely to be solid sellers, but they don't support iTunes and do not have the cache of an iPod....We view Sony as the most serious competitor, but since Apple will be supply-constrained on shuffle it will be difficult to assess the impact in the near term."
Earlier today, Napster CEO Chris Gorog said that he expects Napster to cut into Apple's dominant share of the digital music world with its $14.99 per month subscription service, but Milunovich believes that the subscription service would not be threat to Apple: "We don't see a big impact on Apple because (1) we are not big believers in the subscription model where consumers pay indefinitely to listen to their favorite songs, and (2) if we're wrong, Apple can establish a subscription service with few barriers to entry."
The report said that record label executives also believed that the market would begin to divide among the pay-per-song and subscription models, but that the Labels believed the majority of people would choose to purchase songs--leaving room a much smaller niche market for subscription services.
Concerns over Apple's dominance caused Apple shares to drop by more than 5 percent. However, Merrill reiterated its 'Buy' rating with a price target of $51 per share.