11.16.10

The Beatles and Steve Jobs Make Peace

In a deal years in the making, Apple’s Steve Jobs announced Tuesday a deal for iTunes to carry The Beatles’ catalog. Peter Lauria on what took so long, why the band stalled, and how Apple stands to gain.

It’s either a testament to The Beatles’ lasting impact or a commentary on the quality of today’s artists that the Fab Four’s finally coming to iTunes is the music industry’s biggest news story.

Let’s go with the former, as this is a joyous occasion for the music industry and we don’t want to put a damper on it by reminding the major record labels that their business model is in a death spiral. The Beatles were about hope and optimism, after all.

Apple the computer company, record label EMI, and Apple Corp., the umbrella company for The Beatles’ interests, have reached a deal to make the band’s music available for sale legally on iTunes. The “for sale legally” part is very important because The Beatles have wrongly been identified as “one of the most prominent digital holdouts,” but the truth is that the band’s music has been widely pirated in digital formats for years now.

Ever the showman, Apple CEO Steve Jobs, who was afflicted with Beatlemania at a young age, posted a teasing message on the company’s website yesterday proclaiming, “Tomorrow is just another day. That you’ll never forget.” And while The Beatles coming to iTunes has been rumored for years without ever proving true, this time Jobs, EMI, and Apple Corp. are each motivated enough individually to mutually align their interests in favor of a deal.

The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade.

But first, some background.

Periodically over the last 32 years, Jobs’ Apple and Apple Corp. have swapped trademark infringement lawsuits over their corporate monikers. As The Wall Street Journal notes, the lawsuits have been filed and settled various times over the years—in 1981, 1991, and 2007—as Jobs’ Apple has increasingly moved into the music business. Jobs has been forced to pay at least $50 million to the band as a result of the litigation.

Now, back to the present day.

Though Jobs controls roughly 90 percent of the digital music market through iTunes, which now ranks as the world’s largest music retailer, Apple executives have said that the store is a “breakeven” proposition (i.e., it doesn’t make money; just sustains costs). After years of growth, digital music sales have flat-lined in the last few years. Moreover, new services like Pandora and Spotify have stolen some momentum from iTunes. A splashy announcement about catching The Beatles is both a perfect buzzkill for the upstart hotshots and a nice enticement to drive fans to the iTunes store.

The Beatles’ aversion to technological advancement in the distribution of music—as the  Journal notes, the band came late to the CD revolution as well—is ironic given the band’s reputation for pushing the limits of sound and reshaping our notions of music. Not to be underestimated, however, is the fact that The Beatles aren’t just a band—they are a corporation, and as such feature the same bureaucratic red tape and dysfunctional communication dynamic of any large organization. To put it more bluntly, just like the band members themselves, the estates of John, Paul, George, and Ringo can’t agree on anything either. The holdup in making The Beatles music available digitally is as much a function of infighting among the estates of the various band members as anything else.

Over the last few years, however, signs have been emerging from the solo work of The Beatles’ band members that made today’s announcement inevitable. Timed to the 25th anniversary of its death in 2005, Yoko Ono and EMI agreed to a deal to make the solo work of John Lennon, which includes such songs as “Instant Karma” and “Imagine,” available digitally. Solo material from McCartney, Harrison, and Starr is also available digitally.

Four decades after they last recorded together, and despite the rise of piracy, albums from The Beatles are perennially among the music industry’s best sellers. Fans of the band, which has the most No. 1 albums in history, have been willing to shell out money over and over again to replace hits like “Hey Jude,” and “Lucy in the Sky with Diamonds,” “I Want to Hold Your Hand,” and “Help,” in new formats. According to the sales statistics quoted in The New York Times, The Beatles have sold 177 million albums in the U.S alone and ranked second only to Eminem for most sales in the last decade. Critics frequently rate the band’s “Revolver,” as the best album ever.

That leads us to EMI, which has served as The Beatles’ record label home since the band’s inception and owns the famed Abbey Road studio where it recorded the legendary eponymous album. The timing of the iTunes deal is particularly serendipitous for EMI. The world’s third-largest record label was just the subject of a nasty legal battle between its owner, Guy Hands, a towering figure in the world of international finance, and its primary lender, investment bank Citigroup. Hands, who paid $6.7 billion for EMI in 2007, said he was duped into buying the record label by Citigroup, which he claimed misled him about other interested buyers. We’ll spare you the boring financial details and cut to the chase, which was that Hands got his ass handed to him in the trial and now he needs to increase EMI’s revenue or risk running afoul of his credit agreement with Citigroup, which would allow the bank to take control of the record label via a bankruptcy proceeding. A boost in sales from The Beatles’ catalog could help avoid that outcome. In short, as it has done numerous times in the past with The Beatles catalog through remastering, special editions, and box sets, EMI is essentially asking the band, “Won’t you please, please help me.”

Only difference is, this time around the label isn’t the only one in need of some assistance. Jobs needs a jolt, too. That’s The Beatles everyone: Saving the music industry since 1960.

Peter Lauria is senior correspondent covering business, media, and entertainment for The Daily Beast. He previously covered music, movies, television, cable, radio, and corporate media as a business reporter for The New York Post. His work has also appeared in Avenue, Blender, and Media Magazine, and he's appeared on CNBC, Bloomberg, BBC Radio, and Reuters TV.