While music fans cheered the release of The Beatles on Appleâ€™s iTunes as another sign the music industry is finally coming to terms with digital distribution, for some the news was even more symbolic because it effectively ended what has been a 30-year, costly legal battle between Apple Inc. and The Beatles.
Since 1978, Apple Inc. (NASDAQ:AAPL) has been in and out of trademark disputes with Apple Corps Ltd. - the company that handles the various business interests of The Beatles such as music, films and licensing, costing both Apples millions of dollars in settlement costs and legal fees over the decades.
It was also a battle of egos: technology giant Steve Jobs versus arguably the greatest musical sensation in history and their representatives. The late Michael Jackson and his estate purchased the publishing rights to The Beatles catalogue in the 1980s.
The center of the dispute was then Apple Inc.â€™s name and use of an apple for its logo, with the Apple Corp. arguing Apple Inc. had infringed on its own trademark, a granny smith apple. The two companies settled for a reported $80,000 in 1981 with Apple Computer [now Apple Inc.] agreeing to never enter the music business in any form.
â€śThe feud in itself was a legitimate feud in many ways,â€ť said Tim Bajarin, president of Creative Strategies, a long-time observer of Apple Inc. â€śApple Corp. existed long before [Apple Computer] came into existence and while Apple was doing something different than The Beatles, it was still a trademark.â€ť
But as the fledging computer industry evolved through the 1980s and early 1990s, it became increasingly difficult for Apple Inc. not to be involved in some ways in the production and distribution of music, Bajarin said. Computers began to have sound cards and CD-ROM drives, making them effectively stereos themselves.
Apple Corp. sued Apple Inc. again in 1991, with Apple settling with The Beatles for $26.5 million. The two companies also amended the agreement between the two Apples, giving Apple Inc. the right to be involved in the music business through hardware and software. Apple Corp.'s trademarks would continue to be associated with recorded music, according to a U.K. Court filing.
The two companies finally settled all trademark disputes in 2007, after Apple Corp. unsuccessfully sued Apple Inc. yet again after Apple Inc released iTunes and later the iTunes Music Store. In that settlement, the increasingly-profitable Apple Inc. effectively bought all trademarks from Apple Corp. over the name and use of â€śAppleâ€ť for a reported $500 million.
â€śWe love the Beatles, and it has been painful being at odds with them over these trademarks,â€ť Jobs said in a statement when the settlement was announced. â€śIt feels great to resolve this in a positive manner, and in a way that should remove the potential of further disagreements in the future.â€ť
Despite the settlement and months of speculative chatter of when The Beatles would come over to iTunes, it still took the Fab Four more than three years to agree to digital distribution.
Industry experts say that The Beatlesâ€™ decision to come over to iTunes is both a realization that digital distribution of music is the future of the industry, but also a major business decision. Apple Inc.â€™s iTunes Music Store is by far the largest digital distribution mechanism for music, with a market share well above 70% over its next major competitors, Amazon.com (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT).
John Covach, a rock historian and professor at the University of Rochester, said the reason why it took so long between the 2007 Apple Inc.- Apple Corp settlement to today is The Beatles wanted to get one â€ślast hurrahâ€ť in for CD sales. The Beatles digitally re-mastered all of their recordings and released them in 2009.
â€śThey could not have played it better,â€ť Covach said. â€śThey have effectively maxed out the CD sales and are using iTunes as a way to find fresh revenue. I think they say there wasnâ€™t much left in physical CD sales and when the Beatles pulled the trigger on digital distribution, it effectively kills the CD completely.â€ť
The Beatles will be sold by Apple exclusively through the Christmas holiday, which will also be a boost to Beatles' record sales.
For Apple Inc., while a public relations boon, The Beatles coming over to iTunes means little to the companyâ€™s bottom line, analysts said. The iTunes Music Store has long been used as a mechanism to get consumers to purchase iPods, Mac computers and iPhones â€“ the center of Appleâ€™s business. Apple Inc. reportedly receives on average 20-30 cents per sale of a 99-cent song, while the profit margin on Appleâ€™s hardware is above the 40% mark, said Morningstar Analyst Toan Tran. For products like the iPod, the profit margins are estimated to be as high as 70%.
It also further legitimizes for Apple that digital distribution can be a legitimate avenue that artists can use to sell music.
â€śYes, Apple has a lot clout but we are talking about the greatest band in the history,â€ť said Brenton Hund, intellectual property lawyer with the lawfirm Alston & Bird. â€śFor Apple, this has to do with the credibility and integrity of the catalogue. For me, if I was Steve Jobs, iTunes isnâ€™t a credible catalogue unless the Beatles were there.â€ť