Apple is currently facing some extremely difficult questions in a class action case accusing it of limiting competitors’ access to the iPod.
Along with iTunes, the media player helped revolutionise the way we buy and listen to music. It virtually owned the market from the day of its launch in late 2001.
But in 2007, as competitors started to enter the marketplace, Apple released an iTunes update (7.0). That, and another update the following year, allegedly blocked songs downloaded from anywhere but iTunes from playing on the iPod, or stopped the iPod from working at all until the offending music was removed.
Among those retailers hoping for a chunk of an estimated damages bill which, if implemented, could range from anywhere between $350 million and $1 billion, is US electronics giant Best Buy.
It won’t have any bearing on the case, but here’s an interesting tale that popped up last week regarding an opportunity Best Buy whiffed on before all this mess started.
Former Star Tribune retail reporter Thomas Lee released a book last week called “Rebuilding Empires”. In it, he details a conversation with a former Best Buy executive.
According to the exec, Steve Jobs approached Best Buy in 2001 and the offer he put to them went something like this:
“He rang us up and said, ‘I need distribution. I have got this thing called iTunes and I only want some cut of it.’
‘I don’t want all of it, I’ll give it to you, you can have iTunes.’
“We could use it in the stores. He would give us 50 per cent of the revenue of each song and we did not have to pay for anything.”
50 per cent. That’s an average of 50 cents per song downloaded on iTunes.
A year after Apple introduced its anti-competitive software, iTunes had overtaken both Best Buy and Wal-mart to be the biggest music vendor in the US.
It’s impossible to put a value on what a simple “Yes” would have meant for Best Buy. But at the start of last year, Apple announced 25 billion songs had been downloaded. Phillip Lupke of Germany received a 10,000-euro iTunes card for adding “Monkey Drums (Goksel Vancin Remix)” to his collection.
So a crude estimate puts the deal, nearly two years ago, at roughly an extra $12 billion revenue for Best Buy over 12 years, given iTunes songs retail for an average of 99c each. Hindsight is a wonderful thing.
The executive went on to tell Lee Best Buy passed on being a part of iTunes because it “didn’t understand” what Jobs was saying about the future of music.
Now, they’re in court fighting for what they missed out on because of it.
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