When I went to Pixar, I became aware of a great divide. Tech companies don’t understand creativity.
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They don’t appreciate intuitive thinking, like the ability of an A&R guy at a music label to listen to a hundred artists and have a feel for which five might be successful. And they think that creative people just sit around on couches all day and are undisciplined, because they’ve not seen how driven and disciplined the creative folks at places like Pixar are. On the other hand, music companies are completely clueless about technology. They think they can just go out and hire a few tech folks. But that would be like Apple trying to hire people to produce music. We’d get second-rate A&R
people, just like the music companies ended up with second-rate tech people. I’m one of the few people who understands how producing technology requires intuition and creativity, and how producing something artistic takes real discipline.
Jobs had a long relationship with Barry Schuler, the CEO of the AOL unit of Time Warner, and began to pick his brain about how to get the music labels into the proposed iTunes Store. “Piracy is flipping everyone’s circuit breakers,” Schuler told him. “You should use the argument that because you have an integrated end-to-end service, from iPods to the store, you can best protect how the music is used.”
One day in March 2002, Schuler got a call from Jobs and decided to conference-in Vidich. Jobs asked Vidich if he would come to Cupertino and bring the head of Warner Music, Roger Ames. This time Jobs was charming. Ames was a sardonic, fun, and clever Brit, a type (such as James Vincent and Jony Ive) that Jobs tended to like. So the Good Steve was on display. At one point early in the meeting, Jobs even played the unusual role of diplomat. Ames and Eddy Cue, who ran iTunes for Apple, got into an argument over why radio in England was not as vibrant as in the United States, and Jobs stepped in, saying, “We know about tech, but
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we don’t know as much about music, so let’s not argue.”
Ames had just lost a boardroom battle to have his corporation’s AOL division improve its own fledgling music download service. “When I did a digital download using AOL, I could never find the song on my shitty computer,” he recalled. So when Jobs demonstrated a prototype of the iTunes Store, Ames was impressed.
“Yes, yes, that’s exactly what we’ve been waiting for,”
he said. He agreed that Warner Music would sign up, and he offered to help enlist other music companies.
Jobs flew east to show the service to other Time Warner execs. “He sat in front of a Mac like a kid with a toy,” Vidich recalled. “Unlike any other CEO, he was totally engaged with the product.” Ames and Jobs began to hammer out the details of the iTunes Store, including the number of times a track could be put on different devices and how the copy-protection system would work. They soon were in agreement and set out to corral other music labels.
Herding Cats
The key player to enlist was Doug Morris, head of the Universal Music Group. His domain included must-have artists such as U2, Eminem, and Mariah Carey, as well as powerful labels such as Motown and Interscope-Geffen-A&M. Morris was eager to talk. More than any other mogul, he was upset about piracy and fed up with the caliber of the technology people at the music companies. “It was like the Wild West,” Morris recalled. “No one was selling digital music, and it was awash with piracy. Everything we tried at the record companies was a failure. The difference in skill sets between the music folks and technologists is just huge.”
As Ames walked with Jobs to Morris’s office on Broadway he briefed Jobs on what to say. It worked.
What impressed Morris was that Jobs tied everything together in a way that made things easy for the
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consumer and also safe for the record companies.
“Steve did something brilliant,” said Morris. “He proposed this complete system: the iTunes Store, the music-management software, the iPod itself. It was so smooth. He had the whole package.”
Morris was convinced that Jobs had the technical vision that was lacking at the music companies. “Of course we have to rely on Steve Jobs to do this,” he told his own tech vice president, “because we don’t have anyone at Universal who knows anything about technology.” That did not make Universal’s technologists eager to work with Jobs, and Morris had to keep ordering them to surrender their objections and make a deal quickly. They were able to add a few more restrictions to FairPlay, the Apple system of digital rights management, so that a purchased song could not be spread to too many devices. But in general, they went along with the concept of the iTunes Store that Jobs had worked out with Ames and his Warner colleagues.
Morris was so smitten with Jobs that he called Jimmy Iovine, the fast-talking and brash chief of Interscope-Geffen-A&M. Iovine and Morris were best friends who had spoken every day for the past thirty years. “When I met Steve, I thought he was our savior, so I immediately brought Jimmy in to get his impression,” Morris recalled.
Jobs could be extraordinarily charming when he wanted to be, and he turned it on when Iovine flew out to Cupertino for a demo. “See how simple it is?” he asked Iovine. “Your tech folks are never going to do this. There’s no one at the music companies who can make it simple enough.”
Iovine called Morris right away. “This guy is unique!” he said. “You’re right. He’s got a turnkey solution.” They complained about how they had spent two years working with Sony, and it hadn’t gone
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anywhere. “Sony’s never going to figure things out,” he told Morris. They agreed to quit dealing with Sony and join with Apple instead. “How Sony missed this is completely mind-boggling to me, a historic fuckup,”
Iovine said. “Steve would fire people if the divisions didn’t work together, but Sony’s divisions were at war with one another.”
Indeed Sony provided a clear counterexample to Apple. It had a consumer electronics division that made sleek products and a music division with beloved artists (including Bob Dylan). But because each division tried to protect its own interests, the company as a whole never got its act together to produce an end-to-end service.
Andy Lack, the new head of Sony music, had the unenviable task of negotiating with Jobs about whether Sony would sell its music in the iTunes Store. The irrepressible and savvy Lack had just come from a distinguished career in television journalism—a producer at CBS News and president of NBC—and he knew how to size people up and keep his sense of humor. He realized that, for Sony, selling its songs in the iTunes Store was both insane and necessary—
which seemed to be the case with a lot of decisions in the music business. Apple would make out like a bandit, not just from its cut on song sales, but from driving the sale of iPods. Lack believed that since the music companies would be responsible for the success of the iPod, they should get a royalty from each device sold.
Jobs would agree with Lack in many of their conversations and claim that he wanted to be a true partner with the music companies. “Steve, you’ve got me if you just give me something for every sale of your device,” Lack told him in his booming voice. “It’s a beautiful device. But our music is helping to sell it.
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That’s what true partnership means to me.”
“I’m with you,” Jobs replied on more than one occasion. But then he would go to Doug Morris and Roger Ames to lament, in a conspiratorial fashion, that Lack just didn’t get it, that he was clueless about the music business, that he wasn’t as smart as Morris and Ames. “In classic Steve fashion, he would agree to something, but it would never happen,” said Lack. “He would set you up and then pull it off the table. He’s pathological, which can be useful in negotiations. And he’s a genius.”
Lack knew that he could not win his case unless he got support from others in the industry. But Jobs used flattery and the lure of Apple’s marketing clout to keep the other record labels in line. “If the industry had stood together, we could have gotten a license fee, giving us the dual revenue stream we desperately needed,” Lack said. “We were the ones making the iPod sell, so it would have been equitable.” That, of course, was one of the beauties of Jobs’s end-to-end strategy: Sales of songs on iTunes would drive iPod sales, which would drive Macintosh sales. What made it all the more infuriating to Lack was that Sony could have done the same, but it never could get its hardware and software and content divisions to row in unison.
Jobs tried hard to seduce Lack. During one visit to New York, he invited Lack to his penthouse at the Four Seasons hotel. Jobs had already ordered a breakfast spread—oatmeal and berries for them both—and was
“beyond solicitous,” Lack recalled. “But Jack Welch taught me not to fall in love. Morris and Ames could be seduced. They would say, ‘You don’t get it, you’re supposed to fall in love,’ and they did. So I ended up isolated in the industry.”
Even after Sony agreed to sell its music in the iTunes Store, the relationship remained contentious.
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Each new round of renewals or changes would bring a showdown. “With Andy, it was mostly about his big ego,” Jobs claimed. “He never really understood the music business, and he could never really deliver. I thought he was sometimes a dick.” When I told him what Jobs said, Lack responded, “I fought for Sony and the music industry, so I can see why he thought I was a dick.”
Corralling the record labels to go along with the iTunes plan was not enough, however. Many of their artists had carve-outs in their contracts that allowed them personally to control the digital distribution of their music or prevent their songs from being unbundled from their albums and sold singly. So Jobs set about cajoling various top musicians, which he found fun but also a lot harder than he expected.
