Jimmy Iovine and why the Apple-Beats deal is genius

May 9, 2014

“Apple got everything right except the earbud…”

Jimmy Iovine: “I wasn’t talented enough to stay in the band” – So he built a company and sold it for $3.2 billion to Apple instead

Why Apple’s acquisition of Beats is a genius move

First, let’s get the shock and awe of ‘big’ numbers out of the way…

As Marc Andreesen points out:

“Apple generates ~$13.5B cash per quarter; = ~$1.04B cash per week. Can pay for Beats with 3 weeks of generated cash.”

There’s no such thing as absolute money. Money is always relative.

The price of anything is relative the ability of the buyer to pay and the value the buyer sees. What anyone else thinks is irrelevant (except to boards, shareholders, spouses and lenders, but that’s a different story.)

Headphones? Nice.

License deals? Nice.

Brand? Cool.

But what Apple is also acquiring – and has anybody realized this? – is a compelling vision about music for our modern age.

Too rarefied for you? OK. Let’s get down to earth…

How much is the iTunes franchise – with its impact on Apple hardware sales – worth to Apple today?

How much is the franchise going to be worth five or ten years from now if it remains a stagnant, sterile place in a wildly competitive and creative marketplace?

I don’t know, but think of the $3.2 billion purchase of Beats as smart insurance against inevitable losses if Apple doesn’t start looking around the curve in the music business.

Jimmy Iovine is the guy who can look around the curve. Apple needs someone like him if their iTunes franchise is going to remain viable for the long haul.


Because he understands some deeply fundamental things about music that until Beats came along was lost in the digital translation.

And he’s been able to take that vision and position himself to deliver it first to the record buying public of the 70s, then to the digital music buying generation of the early 21st century – and now to the 800 pound gorilla in the music marketplace.

There is a great interview with him here. I urge you to listen to it.

Jimmy Iovine interview: http://on.wsj.com/1saHlgb

In the meantime, here are some of the gems you can take away in three minutes instead of forty.

As a music guy/Internet guy/history nerd, maybe I see more in this deal than meets the eye.

Here are a few of the things I heard Iovine say that gave me goosebumps (and I was encouraged that few in the audience of tech and music business journalists seemed to understand what he was talking about.)

Insightful – When Iovine heard this from an Intel exec he knew right then and there that the music business as he’d known it for two decades plus was doomed

“Not every industry was made to last forever”

His conclusion:

“These guys just don’t want our land. They want our water too.”

On how the music industry went off the tracks

The problem with CDs: “No one has eighteen good songs in them for an album.”

The ‘screw quality’ attitude: “Labels started putting just anything out.”

The change at the top: “Wall Street took over the music business.”

Revenge of the nerds: “Napster gave people a reason not to buy the g*danmed things (CDs)”

The beautiful vision

“We wanted to fix the degradation of audio that came with the digital revolution.”

“There was an entire generation that was lost to sound. I had some very smart people tell me that ‘no one will pay for sound.'”

“If Beats did anything, it got young kids interested in audio again.”

Drey: “I don’t care about the stealing music part. I care that the music is not being interpreted right”

“We don’t stop (product development) until that thing plays back the way music is supposed to feel.”

“Sound is the only conduit for emotion in music. That’s all we have is sound.”

“Those other headphones look like medical equipment. We don’t know how to do that.”

The big question in music consumption: What song comes next?

“There’s an ocean of music out there and there’s absolutely no curation for it.”

“Everything’s like: Here’s 16, 20, 25 million songs, give me your credit card, good luck”

“FM radio is still listened to more than anything else. You know why? They tell you what song comes next.”

“If you have to search, we have failed you.”

Why code alone can’t produce great playlists

“Why did Bruce Springsteen take eight months to figure out how to sequence six songs? Because it’s important!”

“Most technology companies are culturally inept. I don’t care what they do. They’re never going to get curation right.”

“Content companies never get technology right. Technology companies never get culture right.”

“Right now there are only mathematical solutions for emotion problems and I don’t think technology is there (in music curation) yet”

Connecting the artist with the fan

“I run a record company. I would die to know who bought my records on iTunes. I would like to have that information but I don’t”

“We want to make this a business for musicians.”

“We’re going to build communication between the fan and the artist.”

Iovine gets it and if anybody can deliver us to the Promised Land on behalf of music – and that means for the artists, the audience and the business – he’s the guy with the right stuff.

The urgent need for musicians (all creatives really) to be directly connected with their fans merits an article of its own. The journalists in the audience seemed baffled by that one.

The bottom line: For music to truly thrive, all the stakeholders have to cross the finish line together.

We haven’t had that in music in a long, long time (millennia?) This deal is our shot at it. It’s that significant. No kidding.

It’s also good business for Apple to have someone like Iovine guiding them through a world they don’t fully understand and good for the music industry to have one of their own inside Apple.

Jimmy Iovine interview: http://on.wsj.com/1saHlgb

– Ken McCarthy

P.S. For over 25 years I’ve been sharing the simple but powerful things that matter in business with my clients.

If you’d like direction for your business that will work today, tomorrow and twenty years from now, visit us at the System Club.

The Hard Thing About Hard Things by Ben Horowitz
Reporting, propaganda and the Internet-enabled New Deal for journalism
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