It was in the creation of the iTunes Music Store that Jobs' personality and negotiating style really made a difference. Labels at the time saw the iPod as a way to listen to illegally downloaded music on the go. They were casting about for a legitimate way to sell music digitally, and all their internally built efforts were failing.
Given the desperation in the air, Jobs didn't need to turn on the charm too high to get them onboard. He simply presented himself as the answer to their problems, and the rest took care of itself.
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Former Warner executive VP Paul Vidich recalls an early meeting with Jobs, who rocked back and forth in his chair in obvious frustration as he listened to Warner execs explain their digital plans. "I don't want to talk about what you guys are doing," Vidich recalls Jobs finally saying, noting that he began to say, "You guys have always had your head up your," but diplomatically opted not to finish his sentence. Warner was ultimately the first major to strike a deal with iTunes.
FThe industry as a whole was so mesmerized with the slick interface and intuitive navigation of iTunes that the implications of the terms it demanded didn't immediately appear obvious.
For the traditional music industry, the 99 cent per-track price point -- debundled from the album -- gave consumers less of a reason to buy albums. While digital tracks were growing, they didn't make up for the decline in album sales in both digital and physical formats, leading many in the music business to question the logic of the transition, even if it was an inevitable one.
Even more interesting is the effect this had on other digital music services. The deal Jobs struck gave 70% of each sale to the labels and publishers, with Apple keeping only 30%. That's a thin profit margin, but Apple didn't care, as it could afford to run iTunes on a break-even basis while it raked in profits from the iPod.
Even more interesting is the effect this had on other digital music services. The deal Jobs struck gave 70% of each sale to the labels and publishers, with Apple keeping only 30%. That's a thin profit margin, but Apple didn't care -- it could afford to run iTunes on a break -- even basis while it raked in the cash from the iPod.
Other digital music services didn't have that luxury. They had to make that same deal that Apple was giving, only without the benefit of a brisk hardware-selling business to offset the losses.
"He made it very difficult for anybody else to be a retailer of digital music because the margin structure that was set up was very advantageous for labels and very disadvantageous for anybody else," says Dave Goldberg, founder of Launch.com and former head of Yahoo Music. "All the others who tried to get into the business of selling digital music failed because there was just no margin there. That was what got the labels onboard. He made it such that there was no way for anybody else to make any money, and that gave Apple a huge portion of the market share."
Then there was the issue of DRM, insisted on by the labels, the ramifications of which grew far beyond what they could have ever predicted. Apple's DRM implementation used a proprietary system called FairPlay, which worked only within the ecosystem of Apple's devices. The company refused to license it to other digital retailers, meaning any music bought in DRM form from those services wouldn't play on the iPod. This was particularly frustrating for subscription services.
At the time of the iTunes negotiations, Apple accounted for only about 5% of the personal computer market. Thanks to the success of the iPod and the restrictions of DRM, Apple soon captured an estimated 80% of the digital music market.
But to just look at revenue splits and user interface designs isn't enough to fully appreciate what Jobs brought to iTunes. His mere opinions helped shape the market by what he didn't do as much as what he did.
Take subscription music. Jobs from the very beginning looked down on the model, because he didn't personally think that's what consumers wanted.
"He probably had a role in the slow development of the streaming business by criticizing it with some frequency," former Napster CEO Chris Gorog says. "Days after [Napster's rebirth as a legitimate subscription service], Apple put out a press release comparing iTunes' great success versus Napster 2.0's still-developing opening numbers. Jobs followed this by giving media interviews explaining that 'nobody wants to rent music'-attacking Napster's subscription model. This was like the hare circling back to jump up and down on the turtle. It made us mad, and then it made us laugh. He was awesome."
The debut of the iPhone in 2007 revolutionized the mobile business, both from the perspective of hardware manufacturing (particularly with its touchscreen interface), but more importantly by the way content is acquired through them. The App Store model largely removed wireless carriers from the content retailing equation, allowing developers, service providers and media/entertainment companies to reach mobile consumers directly.
It also had a profound impact on the digital music business by essentially mobilizing any service that could create an app. Before the iPhone, custom Internet radio, subscription music and music-ID companies, among others, had yet to find their legs and their lack of mobility inhibited their ability to grow. To take mind share away from established players like commercial radio and TV, make accessing music as compelling as owning it and, ultimately, let users identify songs while they're out, these services needed a connected device that enabled users to take their services on the go.
And the iPhone turned out to be exactly that: the platform that freed Web-based music services from the chains of a computer and make them mobile. Due to the frenzy surrounding the device and the subsequent app downloading craze, mobile usage of Pandora, Slacker, Rhapsody and Shazam skyrocketed, reinvigorating users with a sense of enthusiasm for music.
Once mobile, Pandora and Slacker allowed listeners to take the customized stations they made online and take them places they hadn't been experienced before. For many new users, this may have been the first time they'd ever heard a radio station tailored to match their tastes and one that they could give feedback to in real time. The popularity of these services caught the attention of terrestrial radio giant Clear Channel, which recently rolled out the ability to create custom channels on its iHeartRadio app.
Where all of this leads remains to be seen. Apple can be expected to remain an innovator. But it will now have to soldier on without Jobs' charisma and his ability to cajole media and entertainment chieftains to venture out into new terrain.
"He stepped past everything going on and put together a way to deliver music without worrying about compatibility problems," former Sony exec Smith says. "He forced the industry to follow. He ended the bullshit."