Five years ago, when Steve Jobs was in negotiations to sell songs on iTunes, he gave music execs a choice: Either work with me or get left in the dust.
They worked with him.
But even though the deals may have helped save their business from piracy, many in the music industry now call it a devil’s bargain. Apple now commands more than 80% of the growing digital music market and has a huge influence on how much such music will cost.
It’s that type of clout that makes many in the film industry nervous as Jobs and Apple negotiate to extend iTunes to feature-length films, a natural step after the store added TV shows last fall. Film moguls are eager to get access to the huge base of customers, especially as an antidote to piracy. But Jobs’ reputation as a brilliant yet arrogant executive used to getting what he wants has left many in Hollywood wondering whether the new-media titan will prove a friend or foe.
It’s an odd place for Jobs to be in, given that 30 years ago, he co-founded a computer company in a garage with a childhood friend. But thanks to business savvy and fortuitous circumstances, Jobs now finds himself one of the most powerful people in the media business, especially as it moves into the digital age.
His clout comes, in large part, from the ascendance of Pixar to a position of such dominance in the animation business that it was acquired by Disney this year for $7.4 billion. The deal made him the Mouse House’s largest single shareholder, with about $4 billion worth of stock, and gave him a seat on its board. He will undoubtedly be a key ally in CEO Bob Iger’s push of the conglom into the digital age.
But Apple, which he heads as CEO, also has extended Jobs’ influence in Hollywood.
Since 2001, when Apple introduced the iPod digital music player and iTunes software, followed by the iTunes Music Store, the company has undergone a radical transformation. In just three years, it has sold 1 billion songs, and since last October, 15 million TV shows and music- videos. For the holiday quarter, Apple made $3.4 billion in iPod and iTunes revenue, compared with just over $2 billion from PCs and software. In other words, it is now a digital media company that sells PCs and software on the side, a dramatic reversal from the company’s first 25 years.
The question is how much Hollywood will be willing to adjust to his style and his terms. The industry is famous for not tolerating brash outsiders, no matter how successful or astute their plans.
“He came in with a lot of bravado and said, ‘We set our mind to what we were going to do in the music business and revolutionized it, and now we want to do the same thing with film,” recalls one studio person close to the talks for movie downloads.
In many ways, Jobs stumbled into the entertainment business. The iPod was pitched to Apple by an outsider, Tony Fadell, currently senior VP of the iPod division.
Even when Jobs bought Pixar from Lucasfilm in 1985, the small computer graphics unit was focused on selling its technology and creating special effects.
The short films created by former Disney animator John Lasseter in the late ’80s were made more to show off Pixar technology than to draw the attention of the entertainment industry. But an Oscar for 1989 short “Tin Toy” ultimately led to “Toy Story” and a revolution in the animation business.
As both companies grew and led Jobs into more frequent contact with media moguls, however, insiders say he took the opportunity to learn more about the entertainment business. At one meeting with top execs at a major conglom hoping to distribute Pixar films when it looked like the Disney deal would fall apart, he spent much of the meeting curiously asking about other parts of the company’s business.
To those who know him through Apple, Jobs is famous for being hands-on, short-tempered and harsh.
“He grades people,” says one former employee. “After you make a presentation — pitching a book, a film, hardware or a software program — he will give you a grade: a B-plus, C-minus, a D, whatever.
“Steve is always the smartest guy in the room and he knows it,” he added.
For those who cross Jobs, it’s not a pleasant experience. He often has reduced people to tears with verbal abuse, says the former worker. “But he’s not doing it for fun. He’s doing it because he wants things better. He cares intensely and 95% of his comments are right.”
Those who worked at Pixar describe a somewhat different Jobs: very involved in negotiations with Disney, but relatively hands-off when it came to filmmaking.
“We had all heard about this tyrant, but we never once saw that person at Pixar,” recalls one longtime employee.
“He was the guiding light in business affairs, but he had such confidence in John and seemed so amazed by the success we were having that he never did more than put his two cents in at meetings,” says former Pixar animator Jorgen Klubien, who is now directing his own toon for Laika Entertainment.
Recently treated for pancreatic cancer, co-workers say that the 51-year-old Jobs seems to have mellowed. “Though a ‘mellowed Steve’ is still a sight to behold,” says one. “At every meeting, you are on pins and needles because someone will get their head handed to them, every time, and you just pray it is not you. It’s like playing Russian roulette.”
Despite his immense wealth, estimated by Forbes at $4.4 billion, Jobs leads a relatively modest life, especially by Hollywood standards. Though he did take a Gulfstream jet from Apple, he draws a salary of just $1, the same he took at Pixar, and relies mainly on the value of his stock.
Although he guards his privacy, his personal life often has drifted into the public realm. His sister Mona Simpson’s novel “A Regular Guy” is loosely based on him. His Palo Alto house is modest by mogul standards, and he always appears in his trademark uniform of jeans and a black turtleneck.
When it comes to his businesses, however, Jobs is obsessed with aesthetics and the consumer experience. When the first Apple stores were ready to open, he reportedly disliked the maple floors and had them ripped up and new floors installed. Though Jobs didn’t come up with the idea of the iPod, it was he who insisted that engineers design the interface so that it would take no more than three clicks to get to a song.
It reflects his approach in designing many products: Define what consumers will respond to, then task others to make that happen.
That was why his insistence was so great that iTunes sell songs for 99¢ each.
Recalls Phil Wiser, who was then chief technology officer of Sony Music: “Steve Jobs came to us and said, ‘iTunes is going to be 99¢ per song. We’d really love for you to be part of it. Take it or leave it.’ ”
With a dominant share of the digital music business, Jobs refused to budge from the flat 99¢-per-song fee in recent renegotiations with the diskeries.
As for adding movies to iTunes, Jobs personally heads up most negotiations, although VP Eddie Cue has taken up some of the slack as competing studios are wary of doing business with a member of Disney’s board.
Studios have resisted Jobs’ initial insistence that feature films be priced at the easy-to-remember $9.99. After all, library titles are typically sold to Wal-Mart and Best Buy significantly cheaper than new releases. Studios now are trying to convince Apple to sell similar content at multiple price points, something the company has never done.
Also complicating the deals: The studios are working out terms with a host of other distributors, including Amazon, Movielink and BitTorrent, in part to make sure that one company does not dominate. It seems that none of the studios wants to be first in making a deal with Apple. Disney would be the logical leader, but even they are cautious, fearing it will look like in-house synergy rather than a business decision.
Jobs would not comment, nor would an Apple spokesman on the status of the negotiations.
But then, Pixar and Apple are tight-lipped when it comes to the press, making announcements only on their own terms and refusing to let their executives speak to the press in most cases, even on background. When he returned to Apple as CEO in 1997, Jobs clamped down on leaks, to the point that those who work on new projects reportedly are not even allowed to tell their own families.
“Now they’re more secretive than a government agency,” says Wired News editor Leander Kahney.
Journalists who try to work around that wall often face retaliation. When Web site ThinkSecret broke news about a new Apple product in 2004, the company filed suit, alleging that it stole trade secrets.
When Daily Variety broke the news that Pixar had hired writers for the pitch that became the 2007 release “Ratatouille,” Jobs tracked the reporter down at the Sundance Film Festival, demanding to know her sources and threatening to fire the film’s writers. He called her on the private line of a rented condo — a number she had not given out to anyone. She still doesn’t know how he found it.
What remains to be seen is if such a closed-mouth policy can survive in a town that is run on rumors, leaks and emails.
But then, much of the way Steve Jobs does business likely will be put to the test in Hollywood. Or will much of the way Hollywood does business be put to the test by Steve Jobs?