Universal Music Group Chief Executive Doug Morris said on Tuesday he may try to fashion an iPod royalty fee with Apple Computer Inc. in the next round of negotiations in early 2007.
Universal, the world’s largest music company, owned by French media giant Vivendi, was the first major record label to strike an agreement with Microsoft Corp. to receive a fee for every Zune digital media player sold.
A large table dominates the room. Seated on one side is Universal Music CEO Doug Morris and six Universal attorneys, three on each side of Morris. On the other side sits Steve Jobs and one Apple attorney. On the table in front of Morris and each of the Universal attorneys are various neatly stacked folders, contracts, and legal pads. In front of Jobs the table is completely clear; he holds nothing in his hands.
Morris: Steve, it’s great to see you again. I hope your flight was good.
Jobs: It was terrific, thanks.
Morris: Well, let’s get right down to it. I’m sure you heard, together with our friends at Microsoft, we created a really interesting arrangement for their “Zune”. What it is, is that for each hardware unit Microsoft sells, Universal gets a small fee. A nominal fee.
Morris uses his fingers to indicate the quotes.
Jobs: Yes. Very interesting.
Morris: A pittance, really. But what it is, is a small step toward compensating us for the stolen music that belongs to us which we all know is being stored on these sorts of devices. Like the Zune. And, you know, like the… iPod. Your iPod. The iPod. You know I got my kids a bunch of those “Nano” ones for Christmas. Big hits. They love ’em. They really do.
Morris: So, uh, we feel that this Zune arrangement is really the future of the, you know, the synergy between our industries. Between music and electronics. And we really feel that this deal is the future. And given the way you’ve led Apple into this future, Steve — and you know, you really have been a leader in this regard — we feel you’re going to want to stay in a leadership position.
Morris, pauses, as though to offer Jobs a turn to speak. Jobs, smiling, says nothing.
Morris: We feel it’d be in both our interests — Apple’s and Universal’s — for you to retake the lead in this regard. I’ll just lay it all on the line here, Steve. Now this doesn’t leave this room, OK?
Morris: Our deal with Microsoft is for one dollar per Zune. There it is. That’s it. (Pause.) And we’re really happy with that, that’s quite a deal. But we really want to see you guys at Apple remain in a leadership position in this market. You guys are number one and we want you to stay there. So we think Apple should do, you know, two dollars per iPod. That’d send a message that you guys are still number one, and you intend to stay there.
Morris sits rigidly, as though braced for an argument.
Jobs: Two bucks?
Morris: That’s right. Two bucks. And we’ll work something out with those little Shuffle thingies. You know, maybe we do one percent instead. One buck out of each hundred, retail. You do this, and then, you know, we’ll relicense our wonderful music library for the iTunes.
Jobs: That sounds great. That’s a great idea.
Morris and his entire legal team seem to relax a bit. Several of the Universal attorneys exchange furtive glances with one another.
Morris: I am so glad to hear you say that. I just knew you’d understand, Steve. I’ll tell you the truth, a lot of my guys here thought this was going to be difficult. But I said, no, this is a win-win deal, and Steve Jobs knows a good deal when he hears it.
Jobs: But what about our Macs?
Jobs: Our Macs. Our computers. That’s where all the music is really stored. The music all goes through iTunes, on our Macs, and then onto the iPod.
Morris: Sure, sure.
Jobs: So whatever it is you guys deserve for the music that’s on iPods, you really deserve something more for what’s stored on Macs, too. Let’s do what’s right, here.
Morris: I’m listening.
Jobs: You can’t download music from P2P to an iPod. You download it to your Mac, and then it goes to your iPod. So maybe Universal deserves something for each Mac we sell, too. What do you think would be fair?
Morris: Goddamn, that’s a terrific idea, Steve. Can you give us a second here?
Jobs: Sure. Go ahead.
Universal’s attorneys begin whispering amongst each other; several of them scribble furiously on their legal pads; others begin tapping on the keypads of their smartphones. The attorney to Morris’s right whispers in his ear, and slides a legal pad in front of him. Morris stares at the pad for a moment, then looks up. He is now very relaxed.
Morris: How about the same thing? One percent of retail. One percent.
Jobs: One percent? (Turns to the Apple attorney on his right.) One percent?
Apple Attorney: (smiling and nodding) Sure.
Morris: Steve, what a great idea this is.
Jobs: But I have a better idea.
Jobs leans forward, and arches his eyebrows.
Morris: OK, sure.
Jobs: How about you take one of those white Zunes and you turn it into a brown one, Doug.
Jobs beams the full Steve Jobs smile.
Apple Attorney: Mr. Jobs is suggesting that you take a white Microsoft Zune 30 gigabyte digital music player and insert it into your rectum.
Jobs: In fact, how about one for each of you? (Gestures to Universal attorneys.) Seven Zunes — that should double their sales for the week.
Jobs: And Universal Music will get seven dollars.
Jobs sits back in his chair, beaming proudly.
Morris has broken out in a bit of a sweat. He wipes his forehead.
Morris: Steve, I don’t think this…
Jobs: Doug, it’s not a problem at all. The Zunes are on me.
Morris: I’m really sorry Steve. I’m sorry. I’ll tell you what: How about we just continue the current deal. The deal we already have. 99 cents a song on the iTunes and that’s it. That sounds like a better idea now that I think about it.
Jobs: That sounds great.