WSJ: The Music Man
Apple CEO Steve Jobs Talks
About the Success of iTunes,
Mac's Future, Movie Piracy
By WALTER S. MOSSBERG
Staff Reporter of THE WALL STREET JOURNAL
June 14, 2004; Page B1
Steve Jobs, chief executive officer of Apple Computer Inc., was the first rock star of the technology business. In 1977, with his partner Steve Wozniak, he developed the first successful mass-market personal computer, the Apple II. Then, in 1984, he reinvented the personal computer by leading the development of the Macintosh.
Mr. Jobs left Apple for a while and, among other things, developed Pixar Animation Studios, whose latest film, "Finding Nemo," topped the box office last year.
Apple's hottest recent product has been the iPod portable music player, which is tightly tied to Apple's pioneering legal music-downloading service, iTunes. Consumers have bought more than three million iPods, and Apple says the device holds a 52% share, measured in units, of the digital music-player market. The iTunes store has sold over 85 million songs.
Last week, Mr. Jobs sat down with the Journal's Walter S. Mossberg for a rare onstage conversation at the second annual D: All Things Digital conference in Carlsbad, Calif. Excerpts:
Walt Mossberg: You've been the leader in legal music downloading. Where does it stand today?
Steve Jobs: We have about 70% market share of the legal downloads, which is great. But if you look at everybody together -- 100% of the legal download market -- we've gone from pretty much zero a year ago to about 2% of the legally sold music in the U.S. That's not a giant number, but if you look at it and say it's been accomplished in a year and you look at the trajectory, it's not inconceivable to see it breaking through 5% in the next 24 months as an example, maybe sooner.
How about the illegal downloading side, though? It's still bigger than what you're doing, right?
It's big, yeah. And that's what we compete with really. We compete really with piracy.
Let's talk about the record labels for a minute. One year into this, when you only have this 2% share, and there's still a ton of piracy out there, they're actually discussing raising the price of singles. What's going to happen if they say to you, "Our hot new singles have to be $1.29, not 99 cents?"
Mr. Jobs: Well, we've just finished renewing our deals with the music companies. And we had to express our opinion fairly strongly that we think the customer doesn't want to pay more than 99 cents for a song. And it turns out the music companies make more money when we sell a song for 99 cents than they do when they sell it on a CD. The prices aren't going up on iTunes, I can tell you that.
Is Apple's future going to continue to be as a company that primarily creates and sells computers? Are we seeing the beginning of a change in the nature of the company?
Mr. Jobs: Well, clearly we're doing some new stuff. I mean, the iPod grew from nothing to a billion-dollar-a-year business by year two. However, if you look at the core of Apple, what Apple is great at is figuring out how to invent cool technology but making it wonderfully easy to use. That's what we have always done. That's what the Mac was. That's what a lot of things we do are.
The needle on Mac market share has not moved in any significant way up. It's under 5%. But I've seen you say that, with the iPod, it's refreshing to not be in single-digit market share.
It is.
Does that foretell a broadening of the company to doing other digital devices that are not full-blown computers?
You have to wait and see. We don't want to get into something unless we can invent or control the core technology in it. And the more we look at it, for more and more consumer devices the core technology in them is going to be software. More and more they look like software in a box. And a lot of traditional consumer-electronics companies haven't grokked [fully understood] software.
Does that mean that you'd be interested at least in looking at some of these other products over time?
We look at a lot of things but I'm as proud of the products that we have not done as I am of the ones we have done.
What's your favorite thing you've not done?
A PDA. We got enormous pressure to do a PDA and we looked at it and we said, "Wait a minute, 90% of the people that use these things just want to get information out of them, they don't necessarily want to put information into them on a regular basis and cellphones are going to do that." So getting into the PDA market means getting into the cellphone market. And you know, we're not so good at selling to the enterprise where you've got, in the Fortune 500, five hundred orifices called CIOs. In the cellphone market you've got five. And so we figured we're not going to be very good at that.
Is there any prospect for a significant increase in Mac market share?
You know, we've got 25 million customers. We've got a retail store business that's now over a billion dollars and bringing in a lot of new customers. Over half the customers that we're selling CPUs to in our retail stores are new to Mac. So I think we've got a very healthy customer base and we love them and we love to delight them with new products, and that's a very healthy business; it's growing.
Let's talk about the computer as the "digital hub." Do you still hold to your idea that the Mac or the PC is the center of the digital world?
Oh yeah. I mean, where are you going to put your 5,000 digital photographs? You're not going to put them on your cellphone for safekeeping.
Small hard disks probably will show up in phones at some point; they'll show up in digital cameras. Won't that change the game?
You won't want to have the only copy of your pictures on the camera or the cellphone because if you lose it, there goes your life.
What about portable video?
We don't see a market for people that want to watch video on these portable devices. What's happening is to build in video, some companies are making [these devices] twice as heavy as an iPod and twice the size of an iPod, so they don't fit in your pocket, and twice as expensive as an iPod.
You've been criticized forever for not playing in the low end of the PC market. Is the iPod your $400 computer?
Yeah, we actually approached it that way. We said we're going to invest in the iPod rather than a PDA and we also said it looks a lot like a $400 computer. And for us the volume is pretty good, so yes. But we want to make them cheaper still. I mean, we're not happy with iPods costing $300 and $400 and we want to keep driving the prices down on them so we're working very hard on that.
A lot of music is likely to be available in formats I can't play on my iPod today.
Like what?
Like [Microsoft Corp.'s] Windows Media Format. Why should I as a consumer have to have a limitation on my device because you have a religious war with [Microsoft Chairman] Bill Gates? Are you against consumer choice?
No. Right now we've got a choice to make ourselves, which is should we spend our energy enhancing the music store and enhancing the iPod in the format that has 70% of the business or should we take some of that energy and stop innovating and go back and try to play Windows Media, which has 30% or less of the market. And we've chosen right now to go with the 70% format. We really believe that we can innovate much more if we control that technology.
So what if they get to 50%?
Well, then let's talk again.
When you look around the economy in general right now do you think tech is back fully? Will it ever be back to where it was in the boom? Where do you think we are in the cycle?
Apple grew 30% last quarter. It was our third quarter of growth, and we're going to have some good growth this quarter I hope. So as far as we're concerned, things are definitely looking up, both the computer business and the music business.
Last year, you talked about the differences in personality between creative people and technology people. It's a year later; do you see any more kind of comity there, any more coming together of those cultures?
Yeah, a little bit, but it's slow going, because they don't understand each other at all. The Hollywood studio heads invited several people down -- [Microsoft CEO] Steve Ballmer, [Hewlett-Packard Co. Chairman and CEO] Carly Fiorina, myself and others to talk about this whole piracy issue because they are trying to get ahead of the curve and figure out what to do. It's great that those things take place, but there's a big gulf.
And the attitude problem is on both sides?
No, I don't think there's an attitude problem, there is just an experience problem -- that people from technology don't understand the creative process that these companies go through to make their products, and they don't appreciate how hard it is. And the creative companies don't appreciate how creative technology is; they think it's just something you buy. And so there is a gulf of understanding between the two of them.
The interesting thing about movies though is that movies are in a very different place than music was. When we introduced the iTunes Music Store there were only two ways to listen to music: One was the radio station and the other was you go out and buy the CD.
Let's look at how many ways are there to watch movies. I can go to the theater and pay my 10 bucks. I can buy my DVD for 20 bucks. I can get Netflix to rent my DVD to me for a buck or two and deliver it to my doorstep. I can go to Blockbuster and rent my DVD. I can watch my DVD on pay-per-view. I can wait a little longer and watch it on cable. I can wait a little longer and watch it on free TV. I can maybe watch it on an airplane. There are a lot of ways to watch movies, some for as cheap as a buck or two.
And I don't want to watch my favorite movie a thousand times in my life; I want to watch it five times in my life. But I do want to listen to my favorite song a thousand times in my life.
So they're really different animals and the movie industry is far more mature in its distribution strategies than the music industry was. So they're really in very different places.
The other thing is that people are much more attuned to visual quality than audio quality. What was the successor to the CD format? MP3, a lower-quality format but one that provided a convenience of being able to transmit music over the Internet that no other format had.
But that's not going to be the case with video. With video, people have ratcheted up to the DVD format and no one is going to go back to VHS quality just because they can download it faster over the Internet. It ain't going to happen. So to download a DVD-quality movie takes hours over most people's broadband connections.
And therefore the threats to Hollywood are very different than the threats to the music industry, and actually the biggest threat to Hollywood isn't the Internet. The biggest threat to Hollywood is DVD burners. And likewise the Internet might not be as big of an opportunity.
