Appetite For Self-Destruction Part 5

The first DMX meetings were between Vidich, Gage, Rad.u.c.h.el, and others at Warner Music's parent company, the newly formed AOL Time Warner. At this point, the internet bubble had already popped, and once-promising copyright-protection companies such as Liquid Audio and Reciprocal had their own problems and were in no position to bail out the recording industry. Warner's people didn't want to approach Microsoft, which owned the Windows Media audio format, because executives feared the predatory software giant would rope the major record companies into an unfavorable deal. So they picked a longtime partner, Sony Corp., which had had a huge role in creating the original CD. Vidich, Gage, and Rad.u.c.h.el flew all over the world to meet with Sony employees such as Koichi Tagawa-at the Peninsula Hotel near Warner Music in Beverly Hills, at Sony headquarters in Tokyo, and at Sony Music's US headquarters. One such meeting was w scheduled for September 11, 2001, in New York City, and after the attacks, sh.e.l.l-shocked j.a.panese reps realized they were stranded, with nothing better to do than talk about the future of digital music. Gage and Rad.u.c.h.el helped them hang on to their hotel rooms for extra nights, since there was absolutely no way for them to fly back to Tokyo that day.

The secret talks heated up. Vidich and Gage enlisted executives from other companies. Larry Kenswil, the digital-strategy expert at Universal Music, the world's biggest record label, agreed to join. Sony reps insisted on inviting Wally Heijnemans, a senior strategy executive from Philips, because Sony and Philips had a history of working together to create high-tech music products. Sony Music's Al Smith was on board, too. Finally, the Warner group approached James Higa, a vice president at Apple Computer who for years had served as chief executive officer Steve Jobs's number two. (Warner enlisted Apple after a recommendation from Sony, which had been working with the computer company on various projects at the time.) The talks went well, as Gage remembers. The group started to lean toward a new digital music format-Advanced Audio Coding, or AAC, a sort of update to MP3 developed by audio engineers including a team from Fraunhofer Inst.i.tute in Germany. Unlike MP3, this format made room for copy protection. In Kevin Gage's vision, copy-protected AAC files could have been supported in new digital music stores-and portable players-from AOL, Sony, and Apple. Everybody would have won.

But there was a snag. The reps from Sony Corp. opposed AAC. They preferred their own format, ATRAC3,* for which Sony would have received a CD-like royalty payment, of course. There were other problems, too. Apple's Jobs and Sony's n.o.buyuki Idei weren't getting along. They had discussed making Sony's television-focused hardware and Apple's new strategy of combining movies, pictures, music, and other entertainment on the same desktop more compatible. But apparently the technology moguls didn't come out of it as friends. "You know Steve, he has his own agenda," Idei later told ex for which Sony would have received a CD-like royalty payment, of course. There were other problems, too. Apple's Jobs and Sony's n.o.buyuki Idei weren't getting along. They had discussed making Sony's television-focused hardware and Apple's new strategy of combining movies, pictures, music, and other entertainment on the same desktop more compatible. But apparently the technology moguls didn't come out of it as friends. "You know Steve, he has his own agenda," Idei later told exRed Herring editor Tony Perkins in a website interview. "Although he's a genius, he doesn't share everything with you. This is a difficult person to work with if you are a big company. We started working with them, but it is a nightmare." The Sony-Apple politics trickled down to the DMX group. Al Smith of Sony Music was caught in the middle, wanting to contribute to a new digital music technology but not wanting to alienate his superiors at Sony Corp. The Warner reps who'd started the whole thing, Gage and Vidich, were just frustrated. "There was a certain sense that we have done 99 percent of this work and gotten to this point-and Sony was in a favorable position to hold it up," Gage says. Finally, in early 2002, the talks disintegrated. editor Tony Perkins in a website interview. "Although he's a genius, he doesn't share everything with you. This is a difficult person to work with if you are a big company. We started working with them, but it is a nightmare." The Sony-Apple politics trickled down to the DMX group. Al Smith of Sony Music was caught in the middle, wanting to contribute to a new digital music technology but not wanting to alienate his superiors at Sony Corp. The Warner reps who'd started the whole thing, Gage and Vidich, were just frustrated. "There was a certain sense that we have done 99 percent of this work and gotten to this point-and Sony was in a favorable position to hold it up," Gage says. Finally, in early 2002, the talks disintegrated.

A few months later, Vidich was in his office, on the thirtieth floor of 75 Rockefeller Plaza in New York City, when he received a phone call. It was from his boss, Barry Schuler, then president of AOL. Schuler had been meeting off and on for months with a colleague-Steve Jobs of Apple Computer-sometimes over dinner at Schuler's house in northern Virginia. At first Schuler was trying to get Jobs to include an AOL platform on the Macintosh computer operating system, which didn't work out. But they started talking about digital music. Jobs showed Schuler a new portable music player Apple had put out called the iPod. At one point, Jobs called Schuler at his AOL Time Warner office, and Schuler pinged Vidich, asking him to join the call. Of course, Of course, Vidich said. Jobs rambled animatedly for a while. The Apple CEO told Vidich and Schuler the digital music services of the time, Pressplay and MusicNet, had gotten it all wrong. He wanted to talk about something new. Something digital music fans would find more interesting. Vidich listened carefully. Vidich said. Jobs rambled animatedly for a while. The Apple CEO told Vidich and Schuler the digital music services of the time, Pressplay and MusicNet, had gotten it all wrong. He wanted to talk about something new. Something digital music fans would find more interesting. Vidich listened carefully.

THE MYTHOLOGICAL AURA surrounding Steven Paul Jobs was bright enough to impress even veteran record label executives who were impervious to getting starstruck. His back story rivaled that of Madonna or Bruce Springsteen. Born in 1955, he was adopted as a baby by a South San Francisco couple, Clara and Paul Jobs. His father was a tinkerer who spent weekends fixing and reselling jalopies. He had been a Coast Guard engine room machinist, a handy background for his later work at International Harvester and, when Steve was at elementary school, Spectraphysics. To find work, Paul Jobs moved the family to Mountain View, a quiet town outside Palo Alto where a Hewlett-Packard engineer befriended young Steve and gave him a carbon microphone to play with. surrounding Steven Paul Jobs was bright enough to impress even veteran record label executives who were impervious to getting starstruck. His back story rivaled that of Madonna or Bruce Springsteen. Born in 1955, he was adopted as a baby by a South San Francisco couple, Clara and Paul Jobs. His father was a tinkerer who spent weekends fixing and reselling jalopies. He had been a Coast Guard engine room machinist, a handy background for his later work at International Harvester and, when Steve was at elementary school, Spectraphysics. To find work, Paul Jobs moved the family to Mountain View, a quiet town outside Palo Alto where a Hewlett-Packard engineer befriended young Steve and gave him a carbon microphone to play with.

Like his adopted father, Steve was a straight shooter who easily grasped mechanical concepts. Third grade bored him, so he shifted to other pursuits-dropping off live snakes into cla.s.srooms and blowing up small homemade bombs. One fourth-grade teacher, Imogene "Teddy" Hill, saw immediately that Jobs was a gifted child and pushed him to skip fifth grade. But he didn't like his hardscrabble junior high, so he convinced his parents to move to Los Altos, heavy with electrical engineers from Lockheed and other companies specializing in electronics and miniaturization. Jobs attended junior high in nearby Cupertino, a place that would later have even more significance in his life, and met a fellow late-1960s geek named Bill Fernandez.

Jobs and Fernandez, an attorney's son, had no interest in sports, unlike the rest of their cla.s.smates. But they were obsessed with electronics, and spent endless hours building stuff in their own garages and the garages of friendly local engineers. One of these mentor types was Jerry Wozniak, who worked for Lockheed, and had a son, Stephen, who had spent his one year at the University of Colorado not achieving much by way of academics. Steve Wozniak had earned the wrong kind of attention from the dean of students after programming computers in the campus data center to spit out piles of paper declaring "f.u.c.k NIXON." "The Woz" left CU and returned to Cupertino. Wozniak befriended Fernandez. Conveniently, Fernandez had a nice workbench in his garage.

Wozniak and Fernandez built what they called a "Flair Pen or Cream Soda Computer," on which lights flashed when users flipped switches. Fernandez invited Jobs over to see it, and he was impressed. No other kid in Cupertino knew more about electronics than he did, or so he thought until he met the Woz, who was five years older. They became friends immediately. Both were loners, and while they shared a pa.s.sion for electronics and computers, it became obvious that Wozniak was purely into the technology while Jobs had higher ambitions for himself. In the meantime, he was happy to meet the Woz's friend John "Captain Crunch" Draper, who showed the misfit electronics prodigies how to "phreak" AT&T telephone technology using something called a "blue box" and make free long-distance calls whenever they wanted.

As Jobs grew older, he went with the times, smoking his share of pot and hallucinating the sounds of Bach in a wheat field during an LSD trip. He enrolled at Reed College in Portland-where James T. Russell, who filed the first patents for the technology leading to the CD, had received his physics degree almost twenty years earlier-and dropped out at age eighteen. It was 1974, and he was living with his parents when he spotted a cla.s.sified ad from Atari, makers of the hot new video game Pong Pong. By then a hippie, dressed in rags, Jobs got the job.*After a brief early hiatus from Atari to track down a baba in India, Jobs returned home and rediscovered his friendship with Wozniak, by then a Hewlett-Packard engineer in Silicon Valley. The Woz was addicted to an Atari driving game, Gran Track Gran Track, and showed up at Jobs's office to play all night on the company's production-room floor. In exchange, Wozniak gave Jobs free, valuable engineering advice. During this time, Atari founder Nolan Bushnell approached Jobs with an idea for a video game, and Wozniak ended up designing the cla.s.sic Break-Out Break-Out in forty-eight hours while Jobs fetched him candy and c.o.ke. Bushnell paid Jobs his fee of $1,000 for the game, but Jobs told Wozniak he'd received $600-and paid the Woz a lowball $300. in forty-eight hours while Jobs fetched him candy and c.o.ke. Bushnell paid Jobs his fee of $1,000 for the game, but Jobs told Wozniak he'd received $600-and paid the Woz a lowball $300.

In general, the Steves had very different interests. Jobs delved into Zen Buddhism, and Wozniak was attending meetings of the Homebrew Computer Club in Menlo Park, where he learned to build printed circuit boards that would ultimately drive color displays. He started bringing Jobs to the meetings, and soon they decided to form a company to sell circuit boards to hobbyists who wanted to build their own crude computers. It fell to Jobs to come up with the name, and he decided on Apple. It wasn't because of his favorite band, the Beatles, who owned a famous record label by the same name in London. It was because he had fond memories of working in an apple orchard as a teenager one summer in Oregon. Against his father's wishes-Jerry Wozniak was wary of his son forming a company with a partner who didn't actually invent products-Steve Wozniak agreed to sign a ten-page doc.u.ment forming Apple Computer on April 1, 1976. To generate a budget, Jobs sold his Volkswagen bus for $500, with the price marked down due to a poorly timed engine explosion, and Wozniak sold his HP calculator for $500. Apple's first customer was a new chain of computer stores, the Byte Shop, whose owner liked Wozniak's circuit boards so much he ordered fifty of them for $25,000. The hardware would soon morph into a bona fide computer, the Apple I. "We didn't build the computer in a garage," Wozniak later told Rolling Stone Rolling Stone. "I built most of it in my apartment and in my office at Hewlett-Packard, where I was working at the time. We just used the garage to a.s.semble the parts toward the end. I don't know where the whole garage thing came from. Maybe it's because Bill Hewlett and David Packard built their machine in a garage, everyone a.s.sumed we built ours there, too. But really, very little work was done there." By the end of that year, Apple I sales generated almost $100,000.

Next, the Woz designed the Apple II in his kitchen. Jobs kept hustling up customers, often making sales calls in bare feet and ratty jeans. They recruited employees. Atari's Rod Holt charged $200 a day, which the Steves claimed was no problem even though they had barely any money; Holt came up with a new power supply so Jobs could achieve his Zen Buddhist vision of eliminating the loud fan whirring inside every computer of the era. (Eventually Holt more than made up for his early lost salary, becoming an Apple engineer and taking a 10 percent stake in the company.) Wozniak was busily creating new products. Endowed with equal parts perfectionism and a sense of urgency, Jobs would get a vision in his head of a new product that he knew would excite the personal computer users. Then he would lean incredibly hard on his employees, including Wozniak, to design it quickly and exactly to his specifications. He wanted the casing for the Apple II to look like a popular, boxy dorm stereo called the KLH, for example, and forced his crew to work morning till night improving rejected prototype after rejected prototype. Jobs's relentlessness eventually took its toll on his friendship with Wozniak; within four years, the inventor would leave the company. But in 1977, Apple took more than three hundred orders for Apple IIs. Jobs started to tap into the power of his charisma. His big, slightly goofy nose gave him the look of the gentle electronics geek that was a big part of his personality, while his sharp eyebrows and fierce stare went with the unwavering confidence and bossy precision that sometimes drove his employees crazy.

"You'd work on something all night, he'd look at it in the morning and say, 'That sucks,'" said Steve Capps, a programmer who later quit Apple, then returned to work on the Macintosh team. "He'd want you to defend it. And if you could, then you were doing your job, and Steve respected you. If not, he'd blow you out of the water."

In 1979, Apple Computer sold $7.2 million worth of stock. Jobs was a millionaire at twenty-four. He bought a house in Los Gatos. He combed his hair and occasionally wore suits. In 1980, the week John Lennon was murdered, Apple went public, selling 4.6 million shares in less than an hour, the most successful public offering to date. Jobs was worth $217.5 million. He landed on the cover of Time Time in 1983. A year later, he paid the advertising firm ChiatDay $1.5 million to create one of the most famous television commercials of all time-"1984," in which a runner destroys a video screen of Big Brother, freeing bald drones in s.p.a.ce suits. It ran exactly once, during the Super Bowl, introducing the Macintosh on January 24, 1984. This new personal computer would revolutionize Jobs's industry, but it was a few years ahead of its time. It caught on with artists, designers, and college students, but it led to Jobs's biggest business failure. Mac sales fell far under projections by Christmas 1984. Apple's board voted Jobs out of the company. in 1983. A year later, he paid the advertising firm ChiatDay $1.5 million to create one of the most famous television commercials of all time-"1984," in which a runner destroys a video screen of Big Brother, freeing bald drones in s.p.a.ce suits. It ran exactly once, during the Super Bowl, introducing the Macintosh on January 24, 1984. This new personal computer would revolutionize Jobs's industry, but it was a few years ahead of its time. It caught on with artists, designers, and college students, but it led to Jobs's biggest business failure. Mac sales fell far under projections by Christmas 1984. Apple's board voted Jobs out of the company.

For the next decade and a half, independently, Jobs and Apple suffered through extreme highs and lows. Thanks to a $20 million stake from future presidential candidate Ross Perot, Jobs's post-Apple startup, NeXT, put out a snazzy computer called the Cube. It was a bust, despite a few s.e.xy new ideas, like an efficient magnetic drive rather than an old-school floppy-disc drive, and a sleek, black-box shape. But Jobs recovered from this elaborate setback, aiming the glare of his considerable charisma toward the movie industry-he bought a special-effects company known as the Graphics Group from Star Wars Star Wars director George Lucas for $5 million, and dumped in $5 million of his own money. This was the beginning of Pixar, the computer-animation firm that would create director George Lucas for $5 million, and dumped in $5 million of his own money. This was the beginning of Pixar, the computer-animation firm that would create Toy Story, Finding Nemo, Toy Story, Finding Nemo, and and Cars Cars and wind up with seven Academy Awards. Meanwhile, Microsoft, which over Jobs's protestations had designed the Windows operating system along the same lines as the Macintosh operating system, eclipsed Apple as the world's largest software company by the early 1990s. In turning his company into a monster, just in time for the internet, Bill Gates left Apple behind. "Apple stopped creating," Jobs told and wind up with seven Academy Awards. Meanwhile, Microsoft, which over Jobs's protestations had designed the Windows operating system along the same lines as the Macintosh operating system, eclipsed Apple as the world's largest software company by the early 1990s. In turning his company into a monster, just in time for the internet, Bill Gates left Apple behind. "Apple stopped creating," Jobs told Rolling Stone Rolling Stone. In the fourth quarter of 1995, Apple lost $68 million and laid off 1,300 employees.

Soon a new Apple CEO, Gil Amelio, started nursing the company back to health, taking tax writeoffs for the unsold inventory, securing key loans, and hiring Jobs as a "special adviser." It wasn't enough. Jobs rode back into Apple's Cupertino headquarters as Amelio's replacement in summer 1997. At first he was Interim CEO and made a big deal to the press about his strikingly low salary-$1 a year. He cut costs. He made rules banning outlandish travel expenses. He hired hotshots like NeXT's Jonathan Rubinstein, who took over the hardware division. He was determined to turn Apple around and became irritably focused on the task, barking at employees he encountered in hallways. By the end of Jobs's first year back-in part thanks to Amelio's earlier work-Apple was profitable again.

Apple would slowly crawl back to its 1980s heights with candy-colored iMacs and their portable iBook cousins. But it took one more ahead-of-its-time vision to make Jobs and Apple more successful and famous than ever. The plan, of course, involved digital music.

THE FIRST PORTABLE digital music player was the MP3Man, created by a South Korean company, Saehan, which was so tiny it never really registered on the Recording Industry a.s.sociation of America's radar. Not so the Rio PMP300, a black, rectangular device resembling a walkie-talkie that had shrunk in the dryer. Manufactured by the Chats-worth, California, electronics company Diamond Multimedia, the Rio made its debut in September 1998, promising MP3 fans they could transfer twenty-four songs from their computer to the device and listen through twelve hours of battery power. It was ugly and hard to use. "We were a small company," says David Watkins, then president of Diamond's RioPort division. "We didn't have the funding to build the business the way we wanted to." digital music player was the MP3Man, created by a South Korean company, Saehan, which was so tiny it never really registered on the Recording Industry a.s.sociation of America's radar. Not so the Rio PMP300, a black, rectangular device resembling a walkie-talkie that had shrunk in the dryer. Manufactured by the Chats-worth, California, electronics company Diamond Multimedia, the Rio made its debut in September 1998, promising MP3 fans they could transfer twenty-four songs from their computer to the device and listen through twelve hours of battery power. It was ugly and hard to use. "We were a small company," says David Watkins, then president of Diamond's RioPort division. "We didn't have the funding to build the business the way we wanted to."

Shortly after the Rio PMP300 came out, the RIAA sued Diamond Multimedia, saying the portable player violated the Audio Home Recording Act-which the record industry had lobbied Congress to pa.s.s in 1992. But Rio had excellent attorneys. They studied the act and found a gaping loophole. The act required electronics companies-like Sony, for the Digital Audio Tape player-to pay a royalty to record labels every time it made devices that would allow more than one copy of a recording. But it specifically exempted computers. And the only way to transfer an MP3 to a Rio was to rip it onto a computer hard drive.* In October 1999, a US District Court judge denied the RIAA's request for a temporary injunction against the Rio. "They were just shocked when they lost," Watkins says. "They had never lost a case before." Diamond sold 200,000 copies of the Rio PMP300 after that. In October 1999, a US District Court judge denied the RIAA's request for a temporary injunction against the Rio. "They were just shocked when they lost," Watkins says. "They had never lost a case before." Diamond sold 200,000 copies of the Rio PMP300 after that.

Meanwhile, over at rapidly recovering Apple Computer, Steve Jobs's latest idea was the "Digital Hub Strategy"-"where the Mac was the center of your lifestyle," as the company's hardware chief, Jonathan Rubinstein, recalls. Digital Hub integrated a number of hip, entertainment-oriented ideas, like iMovie and iPhoto; one blatantly obvious missing piece was the lack of digital music. Apple's brain trust-Jobs, Rubinstein, marketing gurus Phil Schiller and Stan Ng-began discussing how to fill this void.

It was serendipitous for ex-Apple engineer Bill Kincaid, who was working with a start-up company on new audio software called SoundJam, that he heard a very interesting National Public Radio report as he was driving to a track to do a few laps in his Formula Ford car. The report was about MP3s, which Kincaid had never heard of. It focused on Diamond's Rio player, and the bit that most intrigued Kincaid was its lack of compatibility with Apple's Macintosh system. Kincaid, who had worked for Apple on a Mac operating system in the early 1990s, called Diamond Multimedia the next day about designing hardware to interface between the Rio player and the Macintosh. He needed help with the software, so he contacted Jeff Robbin, one of the best programmers he knew, who had also worked at Apple in the early 1990s. Together they spent months inventing SoundJam, a digital jukebox that made it easy for consumers to organize the MP3s they'd ripped or downloaded to their hard drives and play music over their PC speakers. They started selling it through a small software publisher, Casady & Greene, in 1999. "We got that to pretty much be the premiere MP3 player on the Mac," says Robin Casady, the company's co-owner. "And when Apple started looking around for one, they chose ours, and we sold it to them."

At Apple, SoundJam morphed into iTunes, which had a sleek geometric screen with a brushed-aluminum look and made organizing music files on a computer seem like the hippest thing in the world. Jobs talked it up in his January 2001 Macworld Conference & Expo keynote.

The next step in Apple's plan was to design a player. The brain trust studied the market. In addition to the PMP300, there was Creative Labs' irritatingly heavy Nomad Jukebox, which had utilized Fujitsu's 2.5-inch hard drive but still relied on a super-slow USB connection to shift songs from the computer to the player. Overall, Apple's Rubinstein remembers, the players were "just awful." With Jobs's unique brand of encouragement ringing in his ears, Rubinstein put his hardware team to work. Through a contact, he found thirty-two-year-old engineer Tony Fadell, who was on a Vail ski-slope chairlift when he took the call. Rubinstein offered him a high-pressure, eight-week contract. Fadell was single. He had plenty of time to work his b.u.t.t off, Apple-style. By the time he made it to the top of the mountain, although Rubinstein refused to tell him what project he'd be working on, Fadell accepted.

First, Rubinstein and Fadell needed the tiniest hard drive ever made, something that would be affordable to reproduce thousands of times. At the time, nothing small enough to serve their purpose existed. "I basically stalled for a while," Rubinstein recalls. "I told Steve, 'I can't do it yet. It's not time.'" Soon, Toshiba came up with a 1.8-inch, 5-gigabyte disc drive that could carry 1,000 songs and wasn't amazingly expensive. Jobs moved quickly to sign an exclusive deal with Toshiba-shutting out Creative Labs, which was on the brink of releasing its own new player, the Zen. "We had a very s.e.xy player," the company's founder and CEO, Sim Wong Hoo, told Business 2.0, Business 2.0, animatedly waving his arms in frustration, "but we couldn't ship it." Next, Apple's engineers had to find a much faster way than USB of transferring a digital song from a Mac to the player. The solution was FireWire, a technology Apple had invented in the early 1990s, although at the time it was mostly used with j.a.panese-built camcorders, not computers. "Once I saw all those technologies, I went to Steve and said, 'Hey, we know how to do this now. We need some funding,'" Rubinstein recalls. "I started hiring a team and we went and built the thing." animatedly waving his arms in frustration, "but we couldn't ship it." Next, Apple's engineers had to find a much faster way than USB of transferring a digital song from a Mac to the player. The solution was FireWire, a technology Apple had invented in the early 1990s, although at the time it was mostly used with j.a.panese-built camcorders, not computers. "Once I saw all those technologies, I went to Steve and said, 'Hey, we know how to do this now. We need some funding,'" Rubinstein recalls. "I started hiring a team and we went and built the thing."

The project was a secret. Other than Jobs, Rubinstein, Fadell, and a few other Apple executives, n.o.body even knew it involved music. The code name was P-68, or, more colloquially, "Dulcimer," which signified nothing more than "an elegant stringed instrument." Working day and night through the course of his contract, Fadell played with cardboard and foam, moving things around in various patterns to show himself what the player might look like. Eventually, he came up with a box the size of a pack of Marlboros with a cell-phone-sized screen at the top and push b.u.t.tons at the bottom. He weighed down the gadget with fishing weights, to approximate what it might feel like. Then it was time to meet with Jobs. Fadell and Rubinstein knew Jobs liked to get prototypes in groups of three, so they sent up two as "sacrificial lambs," as Steven Levy puts it in his 2006 book The Perfect Thing The Perfect Thing. The third one, they hid under a wooden bowl in the conference room on the fourth floor of Apple's Cupertino offices. It turned out they knew Jobs pretty well. He quickly dismissed the first two, but the third one left him speechless.

At the same meeting, another Apple executive, marketing vice president Phil Schiller, showed his own innovation-the scroll wheel at the center, which would control the gadget in lieu of a keyboard. Jobs turned to Fadell. We can do it, We can do it, Fadell told him. Fadell told him.

Fadell sent feelers out to hardware and software companies about manufacturing the device's internal parts in an affordable way. His contacts were, to put it mildly, somewhat confused. "These suppliers were like, 'Apple is calling, that's great.... What What are they doing, exactly?'" Fadell recalls. "Then they're looking at me, going, 'You're a are they doing, exactly?'" Fadell recalls. "Then they're looking at me, going, 'You're a contractor. contractor. Should I even take this seriously?' And: 'This seems totally foreign to [Apple's] business. Why would they buy this?' It was something non-computer-related." Nonetheless, PortalPlayer, a small company, was thrilled to throw in its lot with Apple Computer, supplying the physical operating system and the external silicon casing. Rubinstein's team then hired Pixo, a software company founded by ex-Apple employee Paul Mercer, to write the programs for running the PortalPlayer chips. "Apple wouldn't even show us what [the final device] looked like," Mercer recalls. "[The working model] had boards and a screen in the corner." Jobs pushed his top lieutenants, who pushed the hardware and software teams, who pushed their subcontractors. The goal was to get the player into stores by Christmas 2001. Should I even take this seriously?' And: 'This seems totally foreign to [Apple's] business. Why would they buy this?' It was something non-computer-related." Nonetheless, PortalPlayer, a small company, was thrilled to throw in its lot with Apple Computer, supplying the physical operating system and the external silicon casing. Rubinstein's team then hired Pixo, a software company founded by ex-Apple employee Paul Mercer, to write the programs for running the PortalPlayer chips. "Apple wouldn't even show us what [the final device] looked like," Mercer recalls. "[The working model] had boards and a screen in the corner." Jobs pushed his top lieutenants, who pushed the hardware and software teams, who pushed their subcontractors. The goal was to get the player into stores by Christmas 2001.

They still needed a name. Jobs was vague when The Perfect Thing The Perfect Thing author Levy asked him who thought it up. "It sort of author Levy asked him who thought it up. "It sort of emerged emerged," Levy concluded, adding his speculation that Jobs was impatient and settled for it just before time ran out. Vinnie Chieco, a freelance copywriter who worked regularly at Apple's Cupertino offices at the time, remembers otherwise. One of Apple's creative directors asked Chieco and a couple of other writers to come up with a number of names. The creative director, with help from Chieco, then narrowed down the list, put each name on a huge piece of paper and presented the top sixty or seventy prospects to Jobs in his office. Jobs whittled them down to three. Jobs had come up with one of them himself (Chieco won't say which one it was). Another, Pod Pod, was on Chieco's list. Jobs didn't immediately say he liked it, but he stopped holding meetings about the name. In pa.s.sing, he spoke positively of it to Chieco a couple of times. Then he ran it by Lee Clow, the TBWAChiatDay ad executive who would oversee the iPod "Silhouettes" campaign. Clow liked it, too. "Like everything else at Apple, it was [Jobs's] decision," Chieco says. Jobs added the "i"-as in iMac-and the name stuck.

The first iPod came out in stores on October 23, 2001. Over at Texas Instruments headquarters, in Dallas, intrigued engineers immediately brought one back to the lab and took it apart. They were impressed with the PortalPlayer chips-two processors. While TI made similar internal products, Apple had found a smaller, cheaper company to do the same work. The TI engineers liked the integration between iTunes and iPod. They felt it was far superior to what Sony Corp. had done with its clunky Music Clip, the poorly reviewed player that had emerged from the SDMI meetings, and corresponding software a couple of years earlier. And they liked innovations like its scroll wheel and lack of an onoff switch. But Randy Cole, manager of TI's digital audio research and development, was impressed for an even simpler reason. "It just looked processors. While TI made similar internal products, Apple had found a smaller, cheaper company to do the same work. The TI engineers liked the integration between iTunes and iPod. They felt it was far superior to what Sony Corp. had done with its clunky Music Clip, the poorly reviewed player that had emerged from the SDMI meetings, and corresponding software a couple of years earlier. And they liked innovations like its scroll wheel and lack of an onoff switch. But Randy Cole, manager of TI's digital audio research and development, was impressed for an even simpler reason. "It just looked cool cool,"* he says. he says.

All Apple needed after that was music-legal music-to play on it. music-to play on it.

PAUL V VIDICH AND Kevin Gage, new-media vice presidents at Warner Music, survived their false-hijacking episode in Brandon, Manitoba. Less than three months later, in January 2002, they faced a scarier ordeal. They had traveled from New York to Cupertino for an appointment at 1 Infinite Loop. They walked into the huge, fanlike gla.s.s structure that was the first building at Apple Computer's headquarters, pa.s.sing underneath the iconic rainbow-colored logo. They met Steve Jobs and a few other Apple executives in a boardroom. Gage started his PowerPoint presentation. Jobs rocked back and forth in his chair, obviously agitated, trying despite himself to be patient. Four slides into Gage's presentation, Jobs interrupted. "You guys are all nuts," he said. Kevin Gage, new-media vice presidents at Warner Music, survived their false-hijacking episode in Brandon, Manitoba. Less than three months later, in January 2002, they faced a scarier ordeal. They had traveled from New York to Cupertino for an appointment at 1 Infinite Loop. They walked into the huge, fanlike gla.s.s structure that was the first building at Apple Computer's headquarters, pa.s.sing underneath the iconic rainbow-colored logo. They met Steve Jobs and a few other Apple executives in a boardroom. Gage started his PowerPoint presentation. Jobs rocked back and forth in his chair, obviously agitated, trying despite himself to be patient. Four slides into Gage's presentation, Jobs interrupted. "You guys are all nuts," he said.

There were a half dozen executives in the room, including AOL's Rad.u.c.h.el and Apple's Higa. Most were in coats and ties. Jobs, true to his image, wore a black turtleneck, jeans, and sneakers. The room went silent. Jobs turned to Vidich, who had spoken with him by phone from New York and was the senior Warner Music executive in the room. "It was almost as if for the first time he was given an audience with a music executive," Vidich says. "And he vented. He vented at the music industry and the ways in which it didn't get it." The major labels, Jobs told Gage and Vidich bluntly, were trying to suck out all the money from digital music for themselves. His His customers- customers-Apple's customers-deserved better. They needed an easy-to-use online music store. His tirade lasted several minutes. "It was kind of awkward," says Gage, who tried to disappear into the blinds behind him. customers-deserved better. They needed an easy-to-use online music store. His tirade lasted several minutes. "It was kind of awkward," says Gage, who tried to disappear into the blinds behind him.

Finally, Jobs finished skewering Vidich. "Steve," came the response from Warner Music's top technology executive, "that's why we're here. We need some help."

At the time, the iPod was for sale at Apple Stores around the country. Jeff Robbin's iTunes software was available for use on Mac computers. Both were popular, but neither was a smash hit. Consumers were put off by the iPod's initial $399 price-to the extent that critics had given it a new acronym, "Idiots Price Our Devices." An improved version had landed in stores in March 2002, but the market was still limited, as both iTunes and the iPod were still incompatible with Windows-based computers. At the boardroom meeting, there wasn't much to say after Jobs's rant. (Notably, he did not show off the iPod or iTunes to the Warner group at this point.) Neither Jobs nor the Warner people discussed specifics. But it became clear to Vidich that he would have to enlist more powerful officials at their companies to make progress on an Apple deal involving digital music.

Vidich returned to Warner Music's offices in New York. He knew just the executive to contact-Roger Ames, a longtime British record man who'd recently become chairman and chief executive officer. Ames agreed to meet Jobs in Cupertino to move the Apple-Warner digital music talks forward. Vidich and Gage went along, and the technology experts briefed Ames on the plane. So far, the Apple people hadn't mentioned any specifics, so the Warner execs came up with their own agenda. They decided to push the "second session" CDs-the super-secure discs with extra layers of music that had been discussed during the failed DMX sessions.

When they arrived, the Apple CEO turned on the very specific kind of charm he uses to persuade important fellow executives. "Sort of a mogul-to-mogul thing," is how Jonathan Rubinstein describes it. "He never reacted to Roger the same way he reacted to Paul [Vidich] and myself. Put it that way," Gage says. "He ranted on Paul, that first meeting, about the a-holes of the music industry. I got ranted on when I was pushing for digital rights management. But when Roger came into the room, you didn't see any of that. You saw Steve at his brightest and sharpest." Jobs listened patiently to Ames's pitch about super-secure CDs. Then he casually turned around a computer screen to show the Warner executives a new piece of software Apple engineers had been working on for the last few months. It was the iTunes Music Store.

Ames's eyes widened as Jobs demonstrated how the store would work. Like every other digital music fan on the planet, he had been frustrated with half-hearted record industry equivalents like Pressplay and MusicNet. "That's a great piece of software," he told Jobs, sincerely. "It does everything I need-it organizes my music, works very efficiently, it has an efficient mechanism around a credit card. This is exactly what we need." He may as well have simply said, "Sold!"

Vidich and his staff worked out a Warner content-licensing deal with Jobs. The 99-cents-per-song concept came from Warner, Vidich recalls; Jobs had been thinking along similar lines and quickly agreed. "We were looking at a hook, something consumers were going to be interested in," Vidich says. Ames went back to New York and became a sort of unofficial Apple salesman. Not everyone was as sold on Apple as he was. At the time, Jim Caparro headed Warner's powerful distribution company, WEA, and told Ames point-blank that he objected to the pricing structure. Apple would take a 22-cent retailer's cut out of every 99-cent song, leaving just 67 cents for the labels to divide up among artists, publishers, and themselves. Caparro was not naive about technology: He saw that digital was the future and would quit the major labels entirely within a few years. But he felt Apple was giving the labels a terrible deal, just as MTV had done in scoring videos for free more than twenty years earlier. Within Warner, he suggested a temporary licensing deal, but was overruled. "Ultimately, we could have constructed a far different deal than sixty-seven cents," says Caparro, who today runs the Entertainment Distribution Company, whose biggest client is Universal Music. "Look what happened as a result: The value of Apple has skyrocketed. Roger felt the proposal by Apple was a good one. Steve Jobs was his Jedi."

Undeterred by Caparro's opposition, Ames met with an acquaintance in the record industry, Doug Morris of Universal Music. Morris, one of the most outspoken major label opponents of Napster, was skeptical at first but surprisingly receptive overall. "I don't think we're going to make a lot of money, but [Jobs] is going to sell a lot of iPods," he told Ames. "Doug, I agree, but I don't think we have much choice," Ames responded. "We have to put a legal service in the market. None of us have come up with anything." It took a short time, but Morris was sold, too. He in turn met with one of his top technology vice presidents, Albhy Galuten. "Of course, we have to rely on Steve Jobs to do this-we don't have anybody at Universal who knows anything about technology," Morris told Galuten. The remark stung Galuten. "In my group [at Universal], there was a guy with a Caltech PhD, a guy with a master's in computer science at MIT, and a guy who architected the DirecTV satellite systems," he says today. we have to rely on Steve Jobs to do this-we don't have anybody at Universal who knows anything about technology," Morris told Galuten. The remark stung Galuten. "In my group [at Universal], there was a guy with a Caltech PhD, a guy with a master's in computer science at MIT, and a guy who architected the DirecTV satellite systems," he says today.

Nonetheless, Galuten went to Cupertino. Although Jobs had told Gage and Vidich he vehemently opposed digital rights management-which prevents users from making unlimited copies of the music files they download from the internet-he conceded the point. Jobs could see that Sony Music, owned by Sony Corp., was not about to budge on this. Sony had been instrumental in creating the CD and had invented the popular Walkman ca.s.sette player in the 1980s. Its executives were not thrilled about ceding their content to a different computer-and-electronics company. So in an effort to make Sony and the other major labels happy, Apple's engineers came up with FairPlay. This encryption prevented users from playing their protected AAC music files, cousins of the MP3, on more than three different computers. The idea was to stop college students from sharing their files all over the dorm rooms by making sure they still had to buy CDs from an old-fashioned record store once in a while.

Otherwise, to Galuten's surprise, the concessions came mostly from Universal. As the biggest major record label by far, whatever Universal did would ultimately dictate terms for its compet.i.tors, especially smaller ones like EMI and BMG. Jobs could not launch the iTunes Music Store without U2, Eminem, and Motown songs from the world's largest label. "We had all the leverage in the world," Galuten says. "I don't know why Doug didn't exercise it." Galuten wanted to fight for a number of points. For example, Jobs insisted that a user must be able to transfer music to an unlimited number of iPods. Galuten saw immediately this would allow people to get as much free music as they wanted. But Morris instructed Galuten to give up this point, as well as several others.* "Doug called and said, 'Just close,'" Galuten recalls. "Doug was not interested in technical details." At Universal, though, Jobs sold his idea to others besides just Doug Morris. He also contacted Jimmy Iovine, head of the company's Interscope Records, which at the time had Dr. Dre, No Doubt, U2, and Eminem and was on the cusp of breaking 50 Cent and Gwen Stefani. Iovine had been worrying about his industry's future for some time but hadn't been impressed with high-tech companies' proposed solutions. Also, he liked Jobs. "We just hit it off, what can I say?" he told "Doug called and said, 'Just close,'" Galuten recalls. "Doug was not interested in technical details." At Universal, though, Jobs sold his idea to others besides just Doug Morris. He also contacted Jimmy Iovine, head of the company's Interscope Records, which at the time had Dr. Dre, No Doubt, U2, and Eminem and was on the cusp of breaking 50 Cent and Gwen Stefani. Iovine had been worrying about his industry's future for some time but hadn't been impressed with high-tech companies' proposed solutions. Also, he liked Jobs. "We just hit it off, what can I say?" he told The Perfect Thing The Perfect Thing author Steven Levy. "Every other company was telling us, 'Give us your licenses and we'll build you a system.' He had a complete thought." Iovine also acknowledged that the persistent rumors at the time of a Universal-Apple merger may have swayed top execs. author Steven Levy. "Every other company was telling us, 'Give us your licenses and we'll build you a system.' He had a complete thought." Iovine also acknowledged that the persistent rumors at the time of a Universal-Apple merger may have swayed top execs.

For Sony Music executives, price remained a sticking point. Jobs insisted on 99 cents per song. Some at the record labels, such as Warner's Vidich and Sony's Phil Wiser, who had replaced Al Smith as chief technology officer, agreed with the Apple chief. They'd tried $3.99 singles in other formats and customers didn't have any interest whatsoever. Wiser spent a lot of time as a go-between, persuading Sony executives and haggling on the phone with Eddy Cue, Apple's director of iTunes. Finally, Jobs cut through the bureaucracy and called Andrew Lack, then chief executive officer of Sony Music. The other four labels are in, Jobs told Lack, and the iTunes Music Store launches in two months-with or without Sony. Lack took Wiser and Sony Music's US chief, Sir Howard Stringer, with him on a company jet to Cupertino in order to view the iTunes Store with Jobs. After that, Sony was in. Later, Lack would declare, "I don't think it was more than a fifteen-second decision in my mind [to license music to Apple] once Steve started talking."

In reality, the decision most likely took more than fifteen seconds. Since the Napster debacle, Sony Corp., more than any other company, had been wracked with conflict over the new file-sharing technologies. The company that had been the first to profit off the transistor radio in the 1950s and had invented the Walkman in the 1970s was an active member of the Napster-supporting Consumer Electronics a.s.sociation. But its record label, Sony Music, was simultaneously a member of the RIAA, which, obviously, opposed file sharing. This was a contradiction, as millions of music fans were filling their iPods and other digital music players with songs they'd downloaded illegally. Sony, which sold 19 million Walkmans in fiscal year 2002, wanted to profit from these customers and compete against the iPod. But the company's record label, Sony Music, accounted for 30 percent of the electronics giant's revenues and most of its profits. Wired Wired magazine termed this internal conflict "The Civil War Inside Sony." Because of it, the company, which had been so instrumental in developing the CD, merely watched as Apple took over the markets for both digital music players and online songs. Keiji Kimura, a Sony senior vice president in charge of portable products, told magazine termed this internal conflict "The Civil War Inside Sony." Because of it, the company, which had been so instrumental in developing the CD, merely watched as Apple took over the markets for both digital music players and online songs. Keiji Kimura, a Sony senior vice president in charge of portable products, told Wired Wired he admired Apple's device but Sony would not try to compete with it. "We do not have any plans for such a product," Kimura said. "But we are studying it." Sony Corp. reps would not comment on these issues. he admired Apple's device but Sony would not try to compete with it. "We do not have any plans for such a product," Kimura said. "But we are studying it." Sony Corp. reps would not comment on these issues.

With all this static in the background, it was easy for unenc.u.mbered Apple to seize the digital music market. Eventually, with the other major labels plunging into iTunes, Sony had no choice. The company gritted its teeth and signed on. "Now Sony Music was going and empowering Steve Jobs and his iPod to take over that business," Wiser says. "It was very controversial and a very difficult move-but it was the right move. No one else in the market was doing anything in digital music at that time."

Why did record executives, who'd stonewalled Rob Glaser's MusicNet and the SDMI process, whoosh into deals with Apple? There are several reasons.* One was Jobs's confidence and charm. At NeXT and Pixar, he'd dealt with Hollywood executives all the time, so he didn't find powerful record people like Roger Ames and Doug Morris particularly intimidating. Another was Apple's tiny market share at the time-just 4 percent or 5 percent of computer users owned Macintoshes, and the iPodiTunes system was initially incompatible with Windows. "Our smaller market share turned out to be an a.s.set!" Jobs said in One was Jobs's confidence and charm. At NeXT and Pixar, he'd dealt with Hollywood executives all the time, so he didn't find powerful record people like Roger Ames and Doug Morris particularly intimidating. Another was Apple's tiny market share at the time-just 4 percent or 5 percent of computer users owned Macintoshes, and the iPodiTunes system was initially incompatible with Windows. "Our smaller market share turned out to be an a.s.set!" Jobs said in The Perfect Thing The Perfect Thing. "We only convinced them to let us do it on the Mac at first. We said, 'Well, if, you know, the virus gets out, it's only going to pollute five percent of the garden here.' And that's probably what, in the end, enabled us to get them to come along with us. Doug Morris, who runs Universal, said, when he was arguing with his own team, 'Look, how-I don't understand how Apple could ruin the record business in one year on Mac. Why shouldn't we try this?'" A third reason was that Jobs told Universal's Galuten that Apple's marketing budget was $15 million to $30 million every quarter. every quarter. This was a free artist-publicity machine on par with MTV. Finally, many executives at record labels believed Microsoft was on the brink of releasing a digital music service that would compete fiercely with iTunes. Surely labels could play the two services off each other. But Microsoft stayed out-until November 14, 2006, when it released the Zune digital music player. Why the long wait? "A lot of people at Microsoft did react quickly, but it took roughly a year to convince the full management chain to act on the knowledge of what was going on with Apple," says Hadi Partovi, who in the early 2000s was general manager of MSN's music and entertainment division, and later cofounded the popular iLike music service on Facebook. "Record labels repeatedly asked us what we were going to do to combat Steve Jobs's marketing budget. Our budget was in the This was a free artist-publicity machine on par with MTV. Finally, many executives at record labels believed Microsoft was on the brink of releasing a digital music service that would compete fiercely with iTunes. Surely labels could play the two services off each other. But Microsoft stayed out-until November 14, 2006, when it released the Zune digital music player. Why the long wait? "A lot of people at Microsoft did react quickly, but it took roughly a year to convince the full management chain to act on the knowledge of what was going on with Apple," says Hadi Partovi, who in the early 2000s was general manager of MSN's music and entertainment division, and later cofounded the popular iLike music service on Facebook. "Record labels repeatedly asked us what we were going to do to combat Steve Jobs's marketing budget. Our budget was in the ones ones of millions." of millions."

After signing up the major labels, Jobs broadened his support in the record industry. He called Irving Azoff, powerful manager of the Eagles, the aging country-rock superstars who had blocked the use of their music in all other digital music services, and begged. "I've said 'no' to all of them," Azoff told the Wall Street Journal. Wall Street Journal. "But I don't like their services, and I liked [Apple's] product." Azoff said yes. In much the same way Sony's CD marketers earned support from big-name artists in the early 1980s, Jobs contacted U2's Bono, the Rolling Stones' Mick Jagger, and Sheryl Crow, among others. "The black iPod is something I coveted-this is a beautiful object," Bono said at an October 2004 press conference, announcing a special-edition iPod that contained U2's entire catalog. (Bono added, "People want to sleep with it.") Jobs invited Dr. Dre, multiplatinum gangsta rapper and masterful Interscope talent scout, who had been a fierce Napster enemy and vowed never to release his music to a digital service, to his office in Cupertino. They tinkered with iTunes for hours. "Man," Dre said afterward, "somebody finally got it right." He gave up the rights. "But I don't like their services, and I liked [Apple's] product." Azoff said yes. In much the same way Sony's CD marketers earned support from big-name artists in the early 1980s, Jobs contacted U2's Bono, the Rolling Stones' Mick Jagger, and Sheryl Crow, among others. "The black iPod is something I coveted-this is a beautiful object," Bono said at an October 2004 press conference, announcing a special-edition iPod that contained U2's entire catalog. (Bono added, "People want to sleep with it.") Jobs invited Dr. Dre, multiplatinum gangsta rapper and masterful Interscope talent scout, who had been a fierce Napster enemy and vowed never to release his music to a digital service, to his office in Cupertino. They tinkered with iTunes for hours. "Man," Dre said afterward, "somebody finally got it right." He gave up the rights.

Not every label executive was thrilled about the sudden rush of Apple excitement. Ted Cohen, who had begun his career as a Bay Area concert promoter and had climbed up the label ladder to be EMI's top new-media executive, was not easily swayed by charisma. He loved Apple products-in a fall 2007 phone interview from his home in Los Angeles, he was in viewing distance of eighteen iPods, five Macintosh computers, and two iPhones. But this was the music executive who'd had the guts to travel with the s.e.x Pistols during their first and last American voyage, through Texas, in 1977. When Sid Vicious swung his ba.s.s at a rabble-rousing Texan from the stage of a club, he missed and bashed Cohen in the face instead. Although Warner's Roger Ames had called one of EMI's top executives, David Munns, to sell him on the iTunes Store, Munns did not go personally to Cupertino. He sent Cohen, who showed up with other label reps. He was unimpressed.

At one point, Cohen remembers John Rose, then an EMI vice president, writing demographic sales statistics on a thirty-foot-long whiteboard in an Apple conference room. Afterward, Jobs stood up, walked to the whiteboard, which was entirely empty save for the one square foot where Rose had scribbled, and erased it completely. Rose was undeterred by this blatant power maneuver. "John, G.o.d bless him, erased what Steve Jobs wrote and wrote something else over that," Cohen recalls. "They were erasing each other's words for about ten minutes. It was funny to watch, but it was very telling-Steve wants to do it his way and that's it." Cohen saw the whiteboard power struggle as a sign of future battles between Jobs and record executives. Shortly after Apple signed up all five of the major record labels-including EMI-Cohen recalls the computer company subtly wriggling out of certain agreements. For example, Cohen says, Coldplay's 2002 smash A Rush of Blood to the Head A Rush of Blood to the Head was supposed to sell for $13 on iTunes, but an EMI distribution executive alerted Cohen one day that it was going for $11.88. The distribution rep called Apple. "OK," the Apple contact responded, "you want us to take it down?" The distribution rep was stunned. "Welcome to the world of Apple," Cohen told him. "If you don't like it, they'll stop selling your music." Apple refused to make its executives, including Jobs, available for interviews for this book. was supposed to sell for $13 on iTunes, but an EMI distribution executive alerted Cohen one day that it was going for $11.88. The distribution rep called Apple. "OK," the Apple contact responded, "you want us to take it down?" The distribution rep was stunned. "Welcome to the world of Apple," Cohen told him. "If you don't like it, they'll stop selling your music." Apple refused to make its executives, including Jobs, available for interviews for this book.*

THE ITUNES M MUSIC Store opened on April 28, 2003, with a catalog of 200,000 songs available for 99 cents apiece. And those were Store opened on April 28, 2003, with a catalog of 200,000 songs available for 99 cents apiece. And those were good good songs, from all five of the major record labels, not the local-band dross digital music fans used to find on websites like MP3.com. There were some major holdouts-the Beatles, Led Zeppelin, Radiohead-but top artists mostly supported the iTunes Store. Bob Dylan, U2, and Eminem provided exclusive tracks. "This industry has been in such a funk," Sheryl Crow declared, endorsing Apple's system on behalf of rock stars. "It really needs something like this to get it going again." songs, from all five of the major record labels, not the local-band dross digital music fans used to find on websites like MP3.com. There were some major holdouts-the Beatles, Led Zeppelin, Radiohead-but top artists mostly supported the iTunes Store. Bob Dylan, U2, and Eminem provided exclusive tracks. "This industry has been in such a funk," Sheryl Crow declared, endorsing Apple's system on behalf of rock stars. "It really needs something like this to get it going again."

Crow's vision came true-for Apple. Surprising its record label partners, the iTunes Store crossed over to Windows-based computers in October 2003 and became a ma.s.s phenomenon, selling 25 million 99-cent songs. It was a huge success-again, for Apple. In 2003, total iTunes sales were the equivalent of one small blockbuster in the record industry. (By contrast, the hundredth alb.u.m on the RIAA's Top 100 list of best-selling alb.u.ms, Green Day's American Idiot American Idiot, had sold 5 million CDs at the time of this writing.) That's a lot, but hardly enough to excite big-spending label executives about a new business model.* Plus, labels made just 67 cents on every 99-cent song, a decent percentage, but far, far inferior to taking roughly $10 to $12 on every $18 CD. (Remember, the labels had to share some of the revenue with artists and songwriters.) For Apple, though, the iTunes Store was absolutely brilliant, because it pushed music fans to buy more and more iPods, for $300 to $500 apiece. In the fourth quarter of 2003, iPods generated about 7 percent of Apple's $1.7 billion in revenue-$121 million overall. Plus, labels made just 67 cents on every 99-cent song, a decent percentage, but far, far inferior to taking roughly $10 to $12 on every $18 CD. (Remember, the labels had to share some of the revenue with artists and songwriters.) For Apple, though, the iTunes Store was absolutely brilliant, because it pushed music fans to buy more and more iPods, for $300 to $500 apiece. In the fourth quarter of 2003, iPods generated about 7 percent of Apple's $1.7 billion in revenue-$121 million overall.

"People think we knew the iPod was just going to be a success," Tony Fadell recalls. "That was the farthest thing from the truth." To his surprise, the iPod changed everything-music, fashion, electronics, computers, the internet. Fans of the Beatles' cla.s.sic Sgt. Pepper's Lonely Hearts Club Band Sgt. Pepper's Lonely Hearts Club Band lamented that the iPod, with its irresistible song-shuffling function, would eliminate the alb.u.m as an art form. The TBWAChiatDay "Silhouettes" ads made it cool to wander college campuses, board buses and trains, jog, and mow lawns while gently swaying to music coming through white earbuds. Vince Carter, superstar dunker for the Toronto Raptors, criticized the National Basketball a.s.sociation's decision to disallow players from practicing with their iPods. Celebrities from actor Bruce Willis to CNN anchor Aaron Brown to President Bush and Vice President Cheney owned up to making playlists for their iPods. (Bush likes the Knack's "My Sharona"; Cheney prefers the Carpenters.) Thanks to the iPod, music was as exciting and culturally important as ever. That didn't necessarily mean the sound was an improvement. Over the years, as compressed iTunes files joined MP3s as the standard for online music, and fans started to listen to music on iPods and tinny computer speakers, producers started to compensate in their studios. By 2006, Bob Dylan was complaining to lamented that the iPod, with its irresistible song-shuffling function, would eliminate the alb.u.m as an art form. The TBWAChiatDay "Silhouettes" ads made it cool to wander college campuses, board buses and trains, jog, and mow lawns while gently swaying to music coming through white earbuds. Vince Carter, superstar dunker for the Toronto Raptors, criticized the National Basketball a.s.sociation's decision to disallow players from practicing with their iPods. Celebrities from actor Bruce Willis to CNN anchor Aaron Brown to President Bush and Vice President Cheney owned up to making playlists for their iPods. (Bush likes the Knack's "My Sharona"; Cheney prefers the Carpenters.) Thanks to the iPod, music was as exciting and culturally important as ever. That didn't necessarily mean the sound was an improvement. Over the years, as compressed iTunes files joined MP3s as the standard for online music, and fans started to listen to music on iPods and tinny computer speakers, producers started to compensate in their studios. By 2006, Bob Dylan was complaining to Rolling Stone Rolling Stone that modern alb.u.ms "have sound all over them. There's no definition of nothing, no vocal, no nothing, just like-static." In late 2007, prominent rock producer David Bendeth added: "They make it loud to get [listeners'] attention. I think most everything is mastered a little too loud. The industry decided that it's a volume contest." that modern alb.u.ms "have sound all over them. There's no definition of nothing, no vocal, no nothing, just like-static." In late 2007, prominent rock producer David Bendeth added: "They make it loud to get [listeners'] attention. I think most everything is mastered a little too loud. The industry decided that it's a volume contest."

The majority of fans, however, didn't care about sound quality. Almost immediately, iTunes emerged as the biggest online retailer, taking more than 70 percent of the market and dwarfing later compet.i.tors like Napster (whose a.s.sets had been purchased by another company, Roxio, and turned into a legal service) and stores from Microsoft, MTV, Sony Corp., and Wal-Mart. By April 2008, the iTunes Music Store had sold more than 4 billion songs around the world. It ranked No. 1, above Best Buy and Wal-Mart, as the top overall music retailer in the United States, according to a survey-research firm called the NPD Group.

Record executives privately started likening Apple to MTV-major labels agreed to give videos to the channel in the early 1980s, when it seemed like a tiny promotional device, and regretted losing all that video revenue when MTV blew up. But this was even worse. Apple had basically taken over the entire music business. Steve Jobs's agenda was not to make money off 99-cent digital songs, although they were a nice additional source of revenue. He used the songs to profit from expensive iPods. Labels made exactly zero dollars for every iPod sale. Not only that, record execs noted ruefully, there was no chance no chance music fans were filling their 80-gigabyte iPods with 20,000 songs they'd bought for 99 cents apiece or ripped from their CD collections. Surely pirated music had something to do with the booming iPod sales as well. music fans were filling their 80-gigabyte iPods with 20,000 songs they'd bought for 99 cents apiece or ripped from their CD colle