Disney Records Now @ iTunes Music Store OR How Apple Made a Monkey Outta Me

First published April 23, 2004

By C. W. Oberleitner

In a special Friday column, C. W. Oberleitner checks in with another look at how this week's surprise joint announcement by Walt Disney Records and Apple Computer is being interpreted or not around Tinsletown.

In Wednesday's column, "Apple's High Definition Future" while reporting on Apple Computer's new product announcements at this year's National Association of Broadcasters (NAB) show in Las Vegas I made reference to the state of the relationship between the Walt Disney Company and Apple Computer:

At first glance, you might think that because of the ongoing feud between Disney CEO, Michael Eisner, and Apple and Pixar CEO, Steve Jobs, that anything Apple might introduce at NAB would have very little effect on the Disney Company. On the consumer side of things it's still impossible to order music from Walt Disney Records at Apple's very successful iTunes Music Store. And, Disney Motion, a new feature at Disney.com for broadband users, is only available to PC users running Microsoft Windows. But, Mickey and the Mac are more entwined than you might think.

As it turns out Mickey and the Mac were even more entangled than I realized. I was up til the wee hours of Tuesday morning putting that story together. I searched the iTunes Music Store for anything and everything called "Disney." Just as it had been since Apple's popular music downloading service first launched, nothing produced or distributed by Walt Disney Records or the Buena Vista Music Group came up. And, at that time, there were no press releases from either company about any plans to do business together.

Around midnight Tuesday, Pacific Coast time, our excellent web master, Grandmaster David, put the story up on our site. At almost exactly the same time Apple re-formatted the iTunes Music Store to include a whole new world of music from Walt Disney Records. Imagine my surprise Wednesday morning. I awoke to an inbox full of messages from my colleagues in the Apple Consultants Network telling me just how wrong I was about Disney music being available via iTunes.

Later that same morning Apple and Disney released a joint press release announcing the exclusive online arrival of Walt Disney Records at the iTunes Music Store.

The joint press release included contact names for additional information at each company. I called Natalie Sequeira from Apple public relations. She was unavailable but returned my call within minutes. She was very glad that JimHillMedia had an interest in the news about Disney music now being available at the iTunes Music Store. She went on, however, to tell me there wasn't much more beyond the press release she had to offer, in the way of news.

"We don't comment beyond what's in the press release." Ms. Sequeira told me. And that's true. If you read virtually any story in the media regarding Apple and its products and services you'll see words to that effect time and time again.

Nevertheless, I pressed on and asked how long the Apple, Disney deal had been in the works. She said, "I can't comment on that."

I asked which party approached the other first. "Again, we typically don't comment on those types of things." She told me.

Ms. Sequeira went on to say, "We put everything into this press release. We don't usually put as much into a press release as we did with this one. We even added the information about the music only being available through September 30. That's not something we would typically put into a news release."

When asked why music from WDR would only be available through September 30, she referred me to Maria Kleinman, also listed on the joint press release, at WDR public relations.

I thanked Ms. Sequeira for her help and called Maria Kleinman. Ms. Kleinman was also unavailable at the time of my call. As of press time no one from Walt Disney Records has returned my call.

Left-Handed Olive Branch

If you read Jim's late breaking story, "Apple and Disney making beautiful music together ... can a new Pixar deal be far behind?" Wednesday afternoon you know that this announcement has set off a flurry of speculation, across the boards, about exactly what this announcement means.

Jim was taken by the fact that Apple CEO, Steve Jobs, had nice things to say about Disney:

Now keep in mind that this is same Steve Jobs who—in his capacity as CEO of Pixar Animation Studios—has had absolutely nothing good to say about the Mouse House (in particular the Disney's corporation's management) for months now...

Jim went on to speculate:

Which brings us to the really BIG question: What does this all actually mean? Did Disney—in an effort to get Pixar back to the negotiating table—decide to extend one hell of an olive branch?

These were valid points and good questions. Questions that I soon discovered would be virtually impossible to get answers for.

I'm never surprised at the total paucity of information available at Apple. Ever since Steve Jobs returned as Apple's CEO the company's Cupertino, California headquarters has become a leak-free zone. I know quite a few people working for Apple and they all sing the same song. "Even if I knew anything, I could not and would not tell you."

I used to take this quite personally until I heard an Apple friend of mine telling his teenage daughter exactly the same thing.

Disney is another story. If the Walt Disney Company were a ship it would probably be the S.S. Minnow of Gilligan's Island fame. Information usually comes flowing out of Burbank and Glendale like wine at a Gay wedding. Not this time, at least not yet.

So I began thinking about this "olive branch" idea. On the one hand Jim has a point, Disney opening up the music vaults to iTunes could create a flood of new business for the Music Store. On the other hand—which is why Harry Truman always wanted to find a one handed economist—its Disney who will probably benefit most from this arrangement.

From the beginning Apple has kept iTunes music prices low. There is NO charge for using or browsing the iTunes Music Store. The overwhelming majority of songs available are only 99 cents. Whole albums can often be ordered for as little as $9.99. To get major artists and the big recording companies to sign on to the Music Store, Jobs and Apple had to guarantee they wouldn't loose money on the deal. Subsequently, the lion's share of that 99 cents goes to the artists and record labels. It's estimated that Apple only makes about ten cents on every song sold.

Apple's real money comes from the fact that the only digital music player that works with iTunes is Apple's iPod. The music store is used to drive iPod sales. Judging by Apple's most recent 2nd quarter earnings statement, in which the Cupertino computer maker tripled earnings estimates, that business model seems to be working.

The only way Apple will significantly benefit by this arrangement is if fans of Disney music have been putting off buying an iPod until their favorite Disney soundtracks were available at the iTunes Music Store. This doesn't seem very likely. A quick survey of some of my fellow Disney dweebs revealed that they, like me, all own at least one—and sometimes two or more—iPods.

As to those nice things, in the press release, Steve Jobs had to say about Disney being so dramatically different from his recent statements about Michael Eisner and the Mouse House. Remember Steve Jobs wears two hats. Apple Computer and Pixar Animation are two separate and distinct companies.

At Pixar Steve Jobs is not only CEO he's the major stockholder. Wall Street analysts estimate that he owns or controls 60% of Pixar's stock. The same is not true at Apple. At Apple, Jobs, like most CEOs, serves at the pleasure of Apple's board of directors and its shareholders. To be sure they love him. He is, however, much more beholden to working in their best interests than he is at Pixar where his are the best interests.

Big Wheel Keeps on Turnin

So what is really going on here? Who actually benefits the most by making Disney music available via the iTunes Music Store? As Steve Jobs said, "iTunes users." Who can now inexpensively download their favorite Disney/Pixar soundtracks and sing-a-long tunes. Beyond the obvious benefit to iTunes users, however, there is much about this announcement to benefit Michael Eisner.

As previously stated, if this joint venture proves to be successful Disney stands to make a great deal more off of it than Apple does. Barring a huge rush by Disney music fans to buy iPods, if the iTunes Music Store sells ten million Disney songs between now and September 30, Apple will earn roughly $1,000,000. On the other hand, Disney will, for next to no capital expense, earn between $6.5 and $7 million. Not a huge sum, to be sure, but given Michael Eisner's predictions for Disney's revenue growth this year, every dollar counts.

As for Steve Jobs rather unflattering remarks, as CEO of Pixar, about Disney films and the seemingly nice things he has to say, in the joint press release, about Disney music. Here to the advantage goes to Eisner. By allowing BVMG, which oversees WDR, to make this deal Eisner risks nothing and backs his adversary—in this case Steve Jobs—into a corner. He gets at least two weeks in the news cycle where the Pixar CEO is widely quoted saying relatively nice things about Disney.

Then there's the matter of the lack of information, beyond the joint press release, about how this amazing little deal came into being when it did. In an e-mail, dated midday Thursday, my colleague here at JHM, Roger Colton, wondered why, given how virtually every move of the Disney company is chronicled in great detail these days, there has been so little news in the broader media about this story.

The answer is simple. High profile news organizations like the L.A. Times and CBS MarketWatch.com don't like press release journalism. They usually assign announcements like this to a reporter who in turn contacts sources familiar with the story for background information. Just like we do here at JHM. The problem is that, just like here at JHM, main stream media is having just as hard a time finding out who and what was behind Disney's sudden decision to make so much of it's music catalog available via the iTunes Music Store.

As one Disney observer put it, "It's not that nobody inside the Mouse wants to talk. Its that they don't know anything." In other words this announcement caught most staffers inside Team Disney Burbank as off guard as the public. My source went on to say, "This suggests to me that this was more of a tactical rather than business decision and that it came from the top down. Much like the rapid re-shuffle at ABC this week."

I asked what he meant by "tactical."

"It's another way of controlling the story." He said. "Disney's been getting a lot of flack lately for their in-your-face style of responding to criticism. This way they get to come out with some very positive news that costs them nothing. They push Steve into a corner and don't give the SaveDisney folks a single thing to latch on to."

Whether or not this Disney watcher's theory proves correct, this remains an interesting story to follow. With Comcast's unsolicited bib to buy the WDC still on the table, CEO Michael Eisner and board chairman George Mitchell under growing pressure to resign, and Disney's stock price beginning to slide every little move the company makes will be increasingly scrutinized.

We want to know to what you think or perhaps know about these and other moves by the WDC. Please, use our discussion boards to talk about these issues. And, by all means, if you're in "the-know" feel free to write us.

C'ya real soon!