As long as the Beatles and Apple have co-existed, fans of both have wondered: when are these crazy kids finally going to get together?
It has finally happened, but it wasn’t easy. The two sides have been fighting off and on since 1978 when the Beatles accused Apple Computer of infringing on the trademark of their business concern, Apple Corps. They settled that one — the Beatles licensed the Apple name to the computer company — fought again over Apple’s music synthesizer, settled again, fought again over iTunes’ apple logo and settled that one too. And now, 32 years later, the two are ready to do business, with Apple selling Beatles singles and albums on iTunes.
This fighting and making up could almost be the plot of a romantic comedy, but it’s not. As a business matter, the Beatles-iTunes deal provides a case study for the art of negotiation. How did the two sides get it right? And where did they go wrong?
DealBook spoke with Robert H. Mnookin of the Harvard Law School, where he is director of the Negotiation Research Project, chairman of the steering committee of Harvard’s Program on Negotiation and the author of the recent book, “Bargaining With the Devil: When to Negotiate, When to Fight.” From that conversation, we drew some useful lessons that the Beatles-iTunes negotiations imply for closing a deal.
1. Money (That’s What I Want)
Make sure you come to the table only when you have something to gain.
Professor Mnookin noted that he often tells his students, “Before you go into any negotiation, any party should ask, what are my interests, what do I care about, and what are my alternatives if I don’t make this deal?”
It is not immediately obvious that the Beatles-iTunes agreement had to happen now. Apple owns 90 percent of the online music market, but its exclusion of the Beatles was something of an embarrassment. It was, however, an embarrassment the company had already borne lightly for years.
On the other side, the Beatles are one of the very few bands that has managed to ignore much of the online music revolution and draw huge profits from CD sales.
But recent Wall Street history suggests that a third player — the EMI Group — may have been the one with the most to gain in a deal. EMI is in dire financial straits and trying to fend off Citigroup, to whom it owes a considerable amount money. In a long, bitter court battle, speculation has reigned that Citigroup may well take over EMI and sell it to Warner Music if EMI’s financial profile does not improve considerably. EMI executives have ruled out a breakup or selling the record company’s rich catalog assets.
Enter the Beatles, whose ability to mint money with their music is unquestioned. After all, when Michael Jackson died last year, his 50 percent stake in Sony/ATV Music Publishing — which owned rights to some of the Beatles’ songs — was worth enough to help offset a good portion of his $500 million in debt. Whether EMI opened the talks this time or Apple did, it was a case of good timing when both sides could capitalize on a rich asset in a way that was not absolutely necessary before.
A corollary to this lesson is that potential business partners should carve out a lot of time when a negotiation has more than one party. With Apple, EMI and the Beatles’ Apple Corps as only three of the entities at the table, this deal was bound to be time-consuming. “I suspect part of the reluctance for the Beatles was the complexity with which its music rights were sliced and diced in various ways,” Professor Mnookin said.
2. Hello, Goodbye … and Hello Again
Persistence pays. Apple was repeatedly sued by the Beatles and paid millions of dollars to settle those suits. The computer company never let that discourage it from pursuing its goal of rounding out the iTunes catalog with Beatles songs, however. Consider that Apple was forced to license its own name from the Beatles’ Apple Corps, which got there first. By 2007, however, it was the Beatles’ Apple Corps that was licensing its name from Apple. Staying objective about the benefits of a deal — and not getting emotional about what happened in the past — enabled the various sides to keep the door open for profitable deals later on.
3. Can’t Buy Me Love
Relationships change. In the words of the hip-hop band OutKast — also carried on iTunes — “nothing is forever.” So, to adapt the rest of the lyric, what makes deals the exception?
Nothing. Markets change, as do people and financial interests. In 2007, the Beatles hired Jeff Jones as the chief executive of Apple Corps, replacing Neil Aspinall, who stepped down for health reasons. Mr. Aspinall had been a childhood friend of Paul McCartney and George Harrison and was focused on protecting the Beatles’ legacy from all comers. Mr. Jones, an American executive with Sony/BMG who had experience in repackaging old albums, had none of those sentimental ties. That inaugurated a new era for deal-making for the company and likely opened the door to the deal with iTunes.
Besides that, Apple and the Beatles have lots of other business interests and they are not directly competitive with each other — giving them less reason to hold grudges.
“They have had strained relationships in the past,” Professor Mnookin said. “But what is so often the case is that entities have so many different businesses that you might find yourself battling it out with one entity in one domain while wanting to cooperate with them in another domain.”
Just in case, it helps to keep a good attitude so that the other party has an incentive to do business with you: “I’m glad they didn’t demonize each other,” Professor Mnookin said.
4. Come Together
Avoid the zero-sum mindset. In negotiation, there is something called “distributive thinking,” which means the belief that there is only one pie that can be sliced up in so many ways — and when one person gets a slice, others don’t. The rest of us know this as zero-sum thinking, or “when you win, I lose.”
“One of the important messages I’m always talking about is that view of the world — that negotiations are purely distributed — is wrong,” Professor Mnookin said. “In many negotiations it’s possible to create value and expand the pie.”
In the Beatles-iTunes deal, for instance, both of them stand to benefit. Apple gets the chance to include the Beatles and their vast money-making power in its offerings, and the Beatles get Apple’s highest prices — $1.29 a track — and its publicity and promotional power, which is a considerable perk for a band that may be looking to sell to a new generation of CD-averse buyers. Both sides — as well as EMI — get to collect a portion of the profits from expanding their audience.
“If a negotiator focuses too exclusively on ‘what size slice I’m going to get,’ they may have failed to see the opportunities in expanding the pie,” Professor Mnookin said.
5. Think of the Future, Across the Universe
Many may question whether it was wise for the Beatles — or Apple — to hold out this long, considering that they are the respective giants in their industries.
But, according to Professor Mnookin, it may have been very smart for Apple to hold out in terms of price or other conditions the Beatles may have tried to impose. If Apple gave in to the Beatles, or struck a special deal with them, it wouldn’t be long before other holdouts — including possibly Kid Rock, AC/DC and Garth Brooks — would be clamoring for similar deals based on their popularity.
“Apple had to be careful about the extent to which it was making a deal with the Beatles in making a precedent that was awkward for it to live with in the future,” Professor Mnookin said. “A repeat player like this doesn’t want to have to negotiate with many other entities.”
And if all of that fails, well — ob-la-di, ob-la-da. Life goes on.
(source:nytimes.com)
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