HP to get back in the digital music game

Hewlett-Packard PC chief Todd Bradley said HP's contract with Apple requiring it to load iTunes on its PCs will lapse in January.
Peter Burrows

At its financial analyst meeting in Manhattan today, HP gave a sense of its timetable for reentering the digital music game, after scrapping its distribution deal to resell iPods earlier this year. PC chief Todd Bradley said HP's contract with Apple requiring it to load iTunes on its PCs will lapse in January. "We'll continue to bundle iTunes through January. It goes without saying we'll live up to the contract," he told reporters.

Bradley was mum on details of what comes next, except to say that the company would roll out a new digital entertainment strategy in 2006. Asked if it was too late for HP to go after the MP3 player market, he said it wasn't. "We think it's a fairly broad market," and that the opportunity remains to create players that can provide a range of ways to get digital music. "It's not an either/or kind of thing," with some people preferring download stores with others opting for subscriptions, for example. "It's going to boil down to who can create a solution that lets you get the music you want, when you want it, and where you want it." He said this might include wired, over-the-air or Wifi access. "There's lots of opportunity," he said.

My bet is that HP will for the most part get back in line with Microsoft's vision for digital entertainment. That's where HP was before former HP CEO Carly Fiorina signed the iPod deal just before the 2004 Consumer Electronics Show. Sources say her decision was driven largely by the fact that an MP3 player being developed internally was a dog, not worth bringing to market. Even so, most HP insiders felt the iPod deal was unworkable from the start, given that it threw a wrench in the Windows Media-based path it had been on (not to mention that it offered little in the way of profits, or that the deal was considered an embarrassment for a company that professed to be an innovator itself).

Indeed, there seems to be a cozying up already in progress between HP and Redmond. I'm thinking of the latest chapter in the soap opera involving the format war over next generation DVDs. In September, HP publicly criticized Microsoft for backing an Toshiba Corp's HD DVD technology, while it loudly proclaimed the superiority of Sony Corp's Blu-Ray technology. But just weeks later, HP all but reversed course, when it asked the Blu-Ray Disc Association to adopt Microsoft software used in the HD DVD spec (Ironically, the Microsoft code would have replaced some interactivity software developed by HP, that would have brought in lucrative royalties for the PC giant).

The Blu-Ray Disc Association is expected to officially pass on HP's proposal in a few days. At that point, HP will likely join the HD DVD group. While HP isn't likely to drop membership from the Blu-Ray Group, my sources suggest it will more actively promote HD DVD.

All of this makes me think HP will once again become a chess piece that Microsoft can use in its ongoing effort to unseat Apple in music and other digital media markets. But how powerful a piece? In some ways, Apple has already gained the most valuable thing HP had to offer: distribution. If not for the short-lived "HPod" partnership, iPods and iPod accessories probably wouldn't be available in RadioShack's 7,000 stores, or on shelves of other big HP partners. So until HP shows it has something important to bring to the digital music party, my guess is that HP will be only a pawn in this fascinating fight.

Before it's here, it's on the Bloomberg Terminal.