Apple 2.0

Covering the business that Steve Jobs built

Apple VP Eddy Cue's double billing: On stage and in federal court

June 9, 2013: 6:57 AM ET

Between WWDC and the e-book antitrust trial, Apple's digital dealmaker has a busy week.

Cue in TK.

Cue in 2011.

FORTUNE -- If the trade press reports are true, Eddy Cue will take the stage Monday at Apple's World Wide Developers Conference in San Francisco to introduce a new music streaming service that reporters have dubbed -- probably with good reason -- iRadio.

Three days later, Cue is scheduled to appear in a Manhattan federal court as the star witness in U.S.A. v. Apple -- the e-books antitrust case that revolves around the deals Cue negotiated in late 2009 and early 2010, just before Steve Jobs unveiled the iPad and introduced the iBookstore.

The parallels between the two appearances are striking.

Cue's job as Apple's senior VP for Internet services and software is to persuade content makers -- recording companies, book and music publishers, TV and movie producers, app developers, etc. -- to put their works on the iTunes stores in terms favorable to Apple (AAPL).

Evidence presented by the Department of Justice last week in the e-book trial described in extraordinary detail -- down to the contents of his text messages and the length in minutes and seconds of his phone calls -- Cue's negotiations with five book publishers that the government claims were engaged in a conspiracy to fix the prices of e-books.

Cue, according to the government, was the "ringmaster" of the conspiracy.

His appearance as a witness in the trial was delayed because he was tied up in similar negotiations with recording companies and music publishers for the iRadio deal.

In both negotiations, Cue pushed hard for contract terms Apple considered essential. In e-books it was a 30% cut of every sale and a price-matching provision that guaranteed that no other e-book distributor could undercut Apple. In streamed music, according to AllThingsD and Billboard, it was Apple's insistence that it not pay for songs that listeners skip.

In return, Apple was giving the content makers something they desperately wanted.

In e-books, it was a cudgel to move Amazon's (AMZN) off its hated $9.99 price for e-book new releases -- a price that the publishers believed was undermining the perceived value of their intellectual property. For music publishers it was a way to collect more revenue than the $0.0012 per track they are getting from Pandora -- currently the leading music streaming service and the top grossing publisher on Apple's iOS app store.

Apple, according to Billboard, is offering to pay music companies the bigger of two revenue buckets: 1) A 50/50 split of advertising after Apple takes 10% to 20% off the top or 2) a per-play/per-listener bucket that could be anywhere from $0.00125 to $0.0016, depending whose reports you believe. Apple is also reportedly including a "buy" button that will take listeners straight to the iTunes store -- plus a cash signing bonus.

Screen Shot 2013-06-09 at 6.23.22 AMIn each case Cue used the classic "the train is leaving the station" negotiating strategy to get the last holdouts to jump on board. And both negotiations came down to the wire. The last e-book deal was signed on Jan. 25, 2010 -- two days before Jobs introduced the iBookstore. Billboard reported on Friday -- three days before WWDC -- that Sony/ATV Music had signed with Apple, leaving Universal Music Publishing Group as the sole holdout.

In both cases Apple's entry was expected to shake up an industry. The publishers used their deal with Apple to force Amazon to restructure its e-book contracts -- at least until the DOJ stepped in. Similarly, the music companies hope to use Apple's arrival to extract more favorable terms from Pandora and Spotify, the biggest music streaming service in Europe.

Apple, of course, stands astride the music industry like a giant. With a catalog of 26 million songs in 119 countries, it claims to run the world's most popular music store. As of February, it had sold 25 billion songs and had gathered the names and credit card numbers of more than 500 million iTunes customers.

When it launched the iBookstore, by contrast, Apple was new entrant in an e-book market dominated by Amazon's 80% to 90% share -- a point that Apple's lawyers have made again and again in the trial that resumes on Monday.

Cue and Murdoch. Photo: Charles Eshelman/FilmMagic

Cue and Murdoch. Photo: Charles Eshelman/FilmMagic

Apple's entry in the e-book market, as it turns out, didn't go so well for the publishers. Not only did the iBookstore not live up to their expectations -- Apple is still the No. 3 e-book retailer after Amazon and Barnes & Noble (BKS) -- but the cash-strapped publishers ended up having to shell out a total of $164 million to settle the government's antitrust claims.

And that wasn't the first time a contract negotiated with Eddy Cue had gone sour for a signee. Less than two years after Rupert Murdoch posed with Cue at the splashy Feb. 2011 launch of News Corp.'s (NWSThe Daily, an iPad-only newspaper, Murdoch shuttered it -- having burned through at least $30 million in start-up costs and estimated $26 million a year to operate it.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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