The Evolution of iTunes: The Birth of a Colossus

This is an excerpt from an article that first appeared in the May 4, 2013 issue of Billboard magazine, which also features our cover story on Rod Stewart's return to rock, an in-depth look at the 10th anniversary of the iTunes Music Store, our incomparable charts and columns, and much more. Head here to purchase the issue, and here to subscribe.

When executives from Warner Music and Sony Music reached out to Steve Jobs in January 2002 in hopes of recruiting Apple into a consortium to develop a standard for interoperable music devices, they approached the meeting in Cupertino, Calif., with much apprehension for the future of the music business. A few minutes into the pitch, Jobs interrupted and said:

“You guys have your heads up your asses.”

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“Everyone else in the room was silent,” recalls Warner executive VP Paul Vidich, who attended the meeting after flying in from New York that morning. “I replied in a hoarse voice, ‘You’re right, Steve. That’s why we’re here. We need your help.’ The intent of the meeting was to recruit Apple to join the consortium, which they did. But this consortium never produced a product or standard.”

Still, the meeting sowed the seeds for something much bigger. It started Apple down its own path, and two months later Jobs called Vidich and requested a separate meeting with Warner executives alone. Jobs said he wanted to discuss his own vision for a digital music store. It had been tried by other companies before, but nothing really caught on. This pitch seemed different somehow, more elegant.

Vidich flew out to Cupertino again, this time with Warner Music CEO Roger Ames. During the two-hour coffee-fueled meeting in Apple’s board room, Jobs talked through his plan excitedly.

By the end, Ames was onboard. He told Jobs: “Work with me alone until you’re completely ready. Don’t make the mistake of trying to work with all of us [majors] at the same time.”

For the next six months, during several Cupertino visits by Ames and his team, Apple and Warner ironed out the business plan while Apple built the infrastructure for its store.

During those meetings it was Warner executives, not Jobs as is commonly thought, who suggested tracks be sold for 99 cents. At the time, many labels wanted to price tracks at $3.49 each. But not Warner.

“When we told Steve, he looked at us like we just gave him a gift,” Vidich recalls. “We knew we needed to alter consumer behavior in a big way. Below $1 was an emotional threshold for people. It became an acceptable impulse purchase.”

“It all moved very quickly after that,” one executive involved in the discussions says.

By early fall, Jobs had a prototype he could show. He flew out to Warner’s headquarters in New York. By all accounts, Jobs was gracious and charming, in full sales mode that day in his distinctive black mock turtleneck and jeans. He gleefully demonstrated a prototype of the iTunes store, enthusing over every minute detail of the software.

“He was like a kid in a candy store,” Vidich says. Ames and team were just as excited.

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