July 15, 2024
Episode

How Music Helped Apple Become the Most Valuable Company in the World

How Music Helped Apple Become the Most Valuable Company in the World
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A breakdown on Apple’s role and influence in music, from iPods to AirPods.

Today’s episode and memo are about Apple and its role on music. Apple’s been the most influential company in music in the 21st century, and music was the key driver in Apple’s comeback. This was a fun deep dive with friend of the pod, Zack O’Malley Greenburg.

I could write a whole book on this topic, but I’ll share a few highlights below from our show on Apple.

You can listen to the episode here or read highlights below.

How music helped save Apple

In 1997, Steve Jobs made his famous comeback to a company in shambles. Apple’s market cap had declined 80% from 1992 to 1997 to a low of $2.3 billion. While Microsoft’s Bill Gates and Steve Ballmer danced up a storm to celebrate their wins, Apple’s leadership, strategy, and product lines were all over the place.

Jobs had two initial goals: improve the software and simplify the products. On the software side, Apple launched Mac OS X and eventually acquired SoundJam MP, a Mac-based mp3 player. This is when Napster, peer-to-peer file sharing, and digital music were taking off. People needed somewhere to listen to all the music on their computer. SoundJam MP was the foundation for Apple’s “jukebox software,” iTunes, which launched January 9, 2001.

The iTunes launched paved the way for the iPod later that year. Its ‘1,000 songs in your pocket’ held more than the flash-based mp3 players at the time, but was more portable than the clunky hard drive-based devices. Despite the iPod’s initial skeptics, the launch was strong. But things really took off for Apple in 2003 when the iPod became available for PC users and Apple launched the iTunes Music Store.

Music as a loss leader

At the time, the music industry was in disarray due to the internet. Apple offered it an escape. The music industry wasn’t too thrilled with Jobs’ desire to unbundle albums to sell individual song, especially for just $0.99 per song. But the unbundling happened long before iTunes due to piracy. The music industry was approached by several businesses to sell music online, and even launched its own service like PressPlay, but eventually leaned in and said yes to Apple.

This was the first transition to music as a loss leader. In 2008, Apple sold $9.2 billion in iPod sales compared to $3.3 billion in iTunes Music Store sales. The iTunes store helped the company sell more iPods, iPhones, and other hardware devices. Music was the product that helped consumers become Mac users.

This trend still exists in Apple products today. Goldman Sachs’ 2023 Music in the Air report estimates that Apple Music has 102 million paid subscribers. Even if we assume that Apple has a very generous monthly average revenue per user of $7.50 per month. That estimated $9 billion in annual revenue for Apple Music is less than the $14.5 billion that the company generated from AirPod sales in 2022! AirPods also likely have a much higher profit margin than the near 70% of revenue that Apple Music pays the music rights holders.

You can listen to the episode here or keep reading for more highlights.

When U2 tried to get Apple stock

Bono and Steve Jobs talked about each other the way that Drake and LeBron James do. The “we wanna be them, they wanna be us,” vibes were strong. It was a healthy, middle-aged bromance.

U2’s iPod commercial and the special red and black U2 iPod have a fun backstory. In 2004, the band went to meet Steve Jobs to shop their upcoming song, “Vertigo”

From Bono’s interview in The Guardian:

“Actually, Steve,” I said. “We don’t want cash. We just want to be in the iPod commercial.”…
“Maybe it’s time to shift the emphasis to artists as well as fans,” Edge added. “Don’t you think we’d look quite good in relief ?
“There’s one other thing,” added [U2’s then-manager Paul McGuinness]. “Although the band are not looking for cash, some Apple stock, even a symbolic amount, might be a courtesy.”
“Sorry,” said Steve. “That’s a dealbreaker.” Silence.
“Well,” I tentatively suggested. “How about our own iPod? A customised U2 iPod in black and red?”


Jobs was skeptical at first, but Apple eventually released and launched the product.

It’s a fascinating move, but let’s revisit stock compensation part.

In our episode, Zack brought up a great point. Even if Jobs declined the request for any preferred stock in Apple, U2 could have taken Apple’s cash payment and bought the company’s common stock on any exchange. Apple was publicly traded at the time. Its market cap today is now 250x higher than it was nineteen years ago then the U2 deal happened!

When U2’s album showed up on every iPhone

Ten years later, U2 reignited its Apple partnership. The band was ready to release its Songs of Innocence (2014) and approached the tech company with a proposal.

Bono wanted Apple to buy the album, then distribute it to its users. “Like when Netflix buys the movie and gives it away to subscribers,” Bono said in the same interview.

In 2013, the year before, Jay Z sold his Magna Carta, Holy Grail album to Samsung in a $20 million deal, where $5 million of that was used to buy 1 million copies of the album for $5 each. U2 likely wanted a similar arrangement with Apple (without the Samsung app crash!).

But Bono took it one step further. He didn’t want users to opt-in for the free album. He wanted it Apple to give the album away as a free gift to every. single. user.

From The Guardian:

“But what was the worst that could happen? It would be like junk mail. Wouldn’t it? Like taking our bottle of milk and leaving it on the doorstep of every house in the neighbourhood.

Not. Quite. True.

On 9 September 2014, we didn’t just put our bottle of milk at the door but in every fridge in every house in town. In some cases we poured it on to the good people’s cornflakes. And some people like to pour their own milk. And others are lactose intolerant.”

It was a PR blunder. Tim Cook referred to it as an experiment that “may not have worked.” But it’s the type of mistake that the actual U2 fans probably loved. The band just kicked off a residency in The Sphere, the new state-of-the-art live music facility. Decades later, the Irish rock band is still at the forefront of new technology.

Again, I could write a whole book on Apple’s impact on music, but I’ll cut it off here cause this newsletter is already running long! Here are a few more topics we covered on the episode:

– why Steve Jobs didn’t like music streaming

– how Beats Music led to Apple Music

– the iPod as the foundation for the iPhone

– Apple’s current role and influence in music

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Dan Runcie
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I am a real estate investor and came across this podcast after a recommendation from a friend who shares my loves for both hip hop and business. Often, those two interests have such polar opposite “voices” - but Dan’s podcast brings those two together for me. The result is magical. Great guests, too!
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As a guy who came up in NYC during the late 90s / early 2000s rap scene, I appreciate the history revisited by Dan, who obviously has an authentic and unique perspective on the culture. But he’s not only a hip hop historian; he’s also a visionary of art, technology and culture who curates other trend setters from across the globe. Salute!
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I stumbled upon this podcast by learning about Dan / Trapital via LinkedIn. I listen to A LOT of podcasts and I decided to give it a listen. First, Dan has a calm and authentic demeanor, which are great qualities. When he’s talking to his guests it’s very conversational and easy flowing. I’m a former music industry vet so the topics are right up my alley.
Phil Stolaronek

Read what the industry leaders read

Hip-hop mirrors the business world in a lot of ways. While I’ve always thought and known that, it’s great to see those ideas brought to life by someone so knowledgeable about both of those things. Huge fan of Trapital.
PPLS CHAMP
Looking forward to future episodes of Trapital. I’ve been following the newsletters for awhile and always learn something new that’s relevant to hip hop and business. Great job getting the nuggets of info from Matthew Knowles on the 1st episode, can’t wait until the next one!
Cburns08
If you’re looking for a podcast with a wealth of info on the business of hip hop, then Trapital is your new home. Dan is an excellent host who has a myriad of of experienced guests to talk their role in the business of hip hop. Check it out!
RoyalSkegee
If you work in — or have an interest in — the music business, Trapital is a must.
Samu Rast
A good friend of mine put me on this podcast and it took me some time to tap in, but once I did, I couldn’t stop listening! Dan has a talent for pulling out the narratives between lines, connecting it to the culture and then making it make sense. I’m a loyal subscriber and am thankful for the podcast!
Zealous Advocate
I am a real estate investor and came across this podcast after a recommendation from a friend who shares my loves for both hip hop and business. Often, those two interests have such polar opposite “voices” - but Dan’s podcast brings those two together for me. The result is magical. Great guests, too!
Gabriel Blue
As a guy who came up in NYC during the late 90s / early 2000s rap scene, I appreciate the history revisited by Dan, who obviously has an authentic and unique perspective on the culture. But he’s not only a hip hop historian; he’s also a visionary of art, technology and culture who curates other trend setters from across the globe. Salute!
Mrkamal
I love Dan’s ability to bring diverse and timely perspectives to the show while asking deeply insightful questions that engage the audience on so many interesting levels. I’ve learned so much in just a short period of listening. Excited for what Dan has in store for the show in the future!
Greg0188
I stumbled upon this podcast by learning about Dan / Trapital via LinkedIn. I listen to A LOT of podcasts and I decided to give it a listen. First, Dan has a calm and authentic demeanor, which are great qualities. When he’s talking to his guests it’s very conversational and easy flowing. I’m a former music industry vet so the topics are right up my alley.
Phil Stolaronek
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