City: Thorn should listen

Click to follow
MY PIECE last week suggesting that in a world of multimedia mergers Thorn-EMI might become a target for BT prompted quite a flurry of interest in the stock market - as well as a call from an angry-sounding Sir Colin Southgate, chairman of Thorn EMI. There's no truth in it all, he told me, and Thorn is certainly not on bid alert. He's good friends with Iain Vallance, chairman of BT; the idea has never even been discussed.

Sir Colin met BT's deputy chairman, Mike Bett, at a function last week and the two laughed their heads off about it, he said. BT is interested in sending visual entertainment down its telephone wires but not music, and even if it was, what would be the point of buying Thorn-EMI, Sir Colin asked. BT already has a near monopoly of the domestic telephone market; it would make a lot more sense for the company to have as many partners as possible, in an effort to persuade people to use the telephone more, than to confine itself to just one. In the business of delivery, promiscuity is always bound to be better than monogamy.

Sir Colin may be right in the near term, but if I were him I wouldn't bank on it further out. If nothing else, talk of a takeover - however off-the-wall it might seem - has served to highlight that companies like Thorn may be severely undervalued in an age where access to copyright and software is all.

At multimedia conferences around the world, all the talk is about how distribution is going to be linked to software. Talk of mergers, particularly in the US, is driven by the fear of lock-out - the possibility that one of your competitors will buy up copyright and deprive you of access. The regulatory implications alone of such vertical integration are mind- boggling.

Just take the following scenario. US West, a regional Bell telephone company about the same size as BT, buys up Thorn EMI and offers its subscribers the right to buy Thorn music down its telephone wires (through Telewest, it's already the largest cable TV operator in Britain). The experiment is a huge success, greatly expanding the market for music and making people use the company's telephone lines much more extensively. BT subscribers want the same thing but US West, a rival company, won't sell BT the software.

I know it all sounds heady, breathless stuff, but there's a certain compelling logic about it all that has got US merger specialists drooling in anticipation. Whether it translates fully to the UK is a different matter, but I wouldn't write off the possibility entirely, as most City analysts seem to. Telephone delivery of things we buy in quite different ways at present will soon be a reality; movies and music are just the beginning. Sir Colin and others ignore the revolution at their peril.