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WSJ on Jobs

The Wall Street Journal has an article today on Steve Jobs' efforts to transform Apple into a digital entertainment company:

About a month ago, Steve Jobs, the chief executive of Apple Computer Inc. and Pixar Animation Studios, made a plea to Irving Azoff, the manager of the rock group the Eagles.

According to Mr. Azoff, Mr. Jobs called to ask that music by the Eagles be included in a new online music service that Apple is launching on Monday. "Please, please, please clear this," Mr. Jobs said, knowing the Eagles in the past have blocked the use of their songs on digital-music services. Mr. Jobs even offered to personally demonstrate the service for Mr. Azoff and to make his case directly to Eagles singer Don Henley.

Scheduling conflicts prevented the personal visits, but the entreaty worked. Earlier this week, the Eagles and AOL Time Warner Inc.'s Warner Music struck a deal, allowing most of the band's music to be used by Apple's service. "I've said 'no' to all of them," Mr. Azoff says of other music services. "But I don't like their services, and I liked [Apple's] product." ...

Now, the latest piece of Mr. Jobs's digital entertainment efforts -- the online-music service it expects to announce Monday -- is reaching fruition. Mr. Jobs has long criticized other online-music services as difficult to use. Apple's approach, say people who have seen it and spoken to Mr. Jobs, is to make delivery of online music easy and intuitive.

Several months ago, Mr. Jobs began a campaign to persuade record labels to let him use their music...

He impressed music-industry executives with his intricate knowledge of the new service, say people who have met with him. In some meetings, he sat at the computer himself to demonstrate. With his trademark confidence, he has asserted Apple will transform the online-music business, claiming that consumers will pay to download millions of songs in just a few months. And he has promised Apple's marketing machine will swing into action behind the music initiative, with an ad blitz similar to Apple's "Think Different" and "Switch" campaigns.

Mr. Jobs hopes to create a new model for online music, a business that so far has only been able to draw large numbers of customers seeking free tunes on Napster and other renegade file-swapping services...

According to people who have met with Mr. Jobs, the new service is integrated with Apple's iTunes software. Only Apple customers can use it, but that may change. The service requires a mouse click to buy songs and additional simple steps to move them to a CD or an iPod. Apple will charge 99 cents per song and sell albums for around $10, they say. Users will get to keep the songs permanently.

Perhaps most important, Mr. Jobs has convinced record executives he's willing to end his provocative dance with digital piracy, symbolized by the slogan "Rip. Mix. Burn." That tag created a furor among entertainment executives, including Disney CEO Michael Eisner, who publicly complained that it amounted to an invitation to steal copyrighted material. While Mr. Jobs has told music officials that he believes any protection is ultimately vulnerable to hackers, he has promised the new service will put up barriers to "keep honest people honest."

For one, music bought through Apple's service will be protected so that it will be more difficult to use an iPod to transfer songs from one computer to another. Users also won't be able easily to e-mail copies of their purchases, or transfer them to the computers of friends. (However, a customer will be able to play the songs on up to three Macintosh computers that he or she designates, as well as an unlimited number of personal iPods registered to him or her.)

In addition to the Eagles, Mr. Jobs has signed up the hot band No Doubt, and other artists who haven't yet allowed their songs to be offered by legitimate online companies. The new service is expected to have an "exclusives" area for music not available elsewhere.

Apple may still be overshadowed by the competing services owned by the record labels and by Listen.com Inc.'s Rhapsody, which recently agreed to be acquired by the software company RealNetworks Inc. "Apple has their core market of 3% to 5%" of computer users, says Rob Glaser, chief executive of RealNetworks. "I guess we'll have to settle for the other 95%."

Though his sound bite is a good one, Glaser is being disingenuous.

First, Apple owners are typically digital media users who are far more likely to use an online music service than the general population of PC owners.

Second, there's nothing to prevent Jobs from moving his service to PCs. Goodness knows I'd rather use software from Apple than the spamware that RealNetworks makes.

Third, Apple's music service will undoubtedly push some fence-sitters over the edge and into the Macintosh camp. Every such convert represents not only a monthly revenue stream from music purchases, but margins of hundreds of dollars on the sale of a new computer.

I must admit that I was down on Jobs when he took over Apple. I was at Be at the time, and we used to joke about how he had engineered a deal in which Gil Amelio paid Jobs $430 million to fire him, and how he was innovating in new colors for computer cases. But he has performed brilliantly as Apple's CEO. It would be foolish to assume that his foray into online music would be anything other than a success.


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