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Beatles on iTunes: The Deal Point That Mattered Most

Perhaps you've heard the news -- a certain band from Liverpool has come to iTunes.

In the aftermath of yesterday's announcement that Apple's iTunes store will begin selling the Beatles catalogue, most commentators were struck by how long it took to make this happen.

Us? We're impressed with the speed of the dealmaking.

Apple Corps, the corporation founded by the Beatles in 1968 (and not to be confused with Apple Inc.) hired its primary lawyers not too long ago. The law firm of Eversheds was retained on October 25 to draft the contract. Less than two months later, working in secret, bam -- the announcement.

The speed of the dealmaking suggests that the major impediment to selling Beatles songs in digital format had largely been worked out by the time it was time to negotiate with Steve Jobs' company.

There's been a popular misconception that the hang-up to getting Beatles songs on iTunes had to do with bad blood between Apple Inc and Apple Corps. over the use of a fruity trademark. After Apple Inc got into the music business with its iPod, Apple Corps sued, contending the computer company had violated an agreement. But that dispute was resolved a couple years ago. If that was the sticking point, Can't Buy Me Love would have been on iTunes for some time now.

From our discussions with knowledgeable folks, the real issue has always been the dispute between Apple Corps and EMI, which owns the master recordings, over what percentage of royalties EMI should pay to the band. The two sides have battled on the royalty front before, and even Paul McCartney has blamed EMI for refusing to sufficiently compensate the band for digital sales.

What changed?

Some have speculated that EMI's debt situation has something to do with the announcement, although the company is denying that. One thing seems clear to us: Jobs and his minions are getting too much credit for making this happen. We hear the key actor in deal was EMI CEO Roger Faxon, who had to make a decision on whether to bend (because the Beatles have veto power over the use of the master recordings) and once that happened, and Faxon signaled a go, the lawyers involved were under a mandate to complete the deal as quickly as possible. 

Now that EMI and the company that manages the Beatles affairs have come to a framework to govern the distribution of royalties and accounting, it's only a matter of time before other retailers like Amazon, MP3, eMusic, and Napster get a bite of the apple. How long? Sometime in 2011. That's how long Apple gets exclusivity.

One more side-note: The beneficiaries of this deal are the publishers, including Sony/ATV and the estate of Michael Jackson, which each own half shares in most Beatles songs.