How about movies? Do you see an iTunes movie store?
We don't think that's what people want. A movie takes forever to download – there's no instant gratification.
Has it been difficult wooing artists to the iTunes store?
Most successful artists control the online distribution of their music. So even though they could do a deal with, say, Universal Music, the largest in the business, these companies weren't able to offer us their top twenty artists. So we had to go to each artist, one by one, and convince them, too. A few said, "We don't want to do that." Others said, "We'll let you distribute whole albums but not individual tracks." And we declined. The store is about giving the users choice.
Do you expect that one day Apple will start signing musicians – and, in effect, become a record label?
Well, it would be very easy for us to sign up a musician. It would be very hard for us to sign up a young musician who was successful. Because that's what the record companies do.
We think there are a lot of structural changes that are probably gonna happen in the record industry, though. We've talked to a large number of artists who don't like their record company, and I was curious about that. The general reason they don't like the record company is because they think they've been really successful, but they've only earned a little bit of money.
They feel they've been ripped off.
They feel that. But then again, the music companies aren't making a lot of money right now... so where's the money going? Is it inefficiency? Is somebody going to Argentina with suitcases full of hundred-dollar bills? What's going on?
After talking to a lot of people, this is my conclusion: A young artist gets signed, and he or she gets a big advance – a million dollars, or more. And the theory is that the record company will earn back that advance when the artist is successful.
Except that even though they're really good at picking, only one or two out of the ten that they pick is successful. And so most of the artists never earn back that advance – so the record companies are out that money. Well, who pays for the ones that are the losers?
The winners pay. The winners pay for the losers, and the winners are not seeing rewards commensurate with their success. And they get upset. So what's the remedy? The remedy is to stop paying advances. The remedy is to go to a gross-revenues deal and tell an artist, "We'll give you twenty cents on every dollar we get, but we're not gonna give you an advance. The accounting will be simple: We're gonna pay you not on profits – we're gonna pay you off revenues. It's very simple: The more successful you are, the more you'll earn. But if you're not successful, you will not earn a dime. We'll go ahead and risk some marketing money on you. But if you're not successful, you'll make no money. If you are, you'll make a lot more money." That's the way out. That's the way the rest of the world works.
So you see the recording industry moving in that direction?
No. I said I think that's the remedy. Whether the patient will swallow the medicine is another question.
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This story is from the December 25, 2003 issue of Rolling Stone.
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