Macenstein

Posted by Dr. Macenstein

Apple has scheduled a special event to be held during the Super Bowl this year, according to the Toronto Sun. Their source claims that the event (likely to take the form of a highly-priced Super Bowl commercial) will allegedly be used to announce that The Beatles will finally be dragged, kicking and screaming, into the era of digital downloads, and will begin by signing an exclusive three-month deal with long time legal foe, Apple Inc.

While I am happy to see The Beatles on iTunes, and the 3-month exclusivity (if true) is a nice feather in Apple’s cap, does it really make sense for Apple to take out a Super Bowl Ad to announce this? Reportedly CBS is looking for somewhere in the neighborhood of $2.6 million for a 30-second spot at this year’s Super Bowl. Add to that the cost to actually make a commercial (possibly even having to pay Ringo or Paul to appear in said commercial) and Apple could be looking to drop a huge sum on what I would consider a “press-release-worthy” event at best.

To their credit, last year The Beatles were the 5th best-selling artists, selling 2.8 million units, which is amazing for a group that hasn’t put out a new song in almost 40 years. It seems The Beatles’ fans are right up there with the “Kiss Army”, buying any new compilation, digitally re-mastered release, or box set the artists can throw at them. And now comes word (in the form of rumor) that The Beatles will be releasing a newly “re-mastered” version of their entire UK catalog of albums (those not produced by Capitol) this June, but with iTunes versions available as early as Valentine’s Day.

So What?

So, is this really a big deal for Apple? Will it bring in the $3- $15 million (or more) Apple is likely to spend producing an add to promote it? Probably not. While I have no doubt that a good deal of Beatles fans, particularly younger ones, may rush out and download these tracks, the overwhelming majority of Beatles fans who are excited about these newly re-mastered albums will likely wait until the CD versions come out. If they have been waiting 30 years for a re-mastered version of Please, Please ME, they aren’t going to want the compressed digital file (complete with DRM) Apple is likely to offer. They will most likely want to wait 3 months for the CD, or maybe even a 5.1 audio DVD, to come out (although some Beatles “purists” would probably prefer an LP release).

There is a chance that Beatles fans, like the Kiss Army mentioned above, will choose to buy BOTH the iTunes download for a quick fix, and then the CD/DVD versions a few months later, but that will not likely be the majority. Especially if you factor in that a large portion of Beatles fans will be anticipating the bonus materials that will likely ship with these releases, such a photos, booklets, etc. You really can’t get these via iTunes, despite the included PDFs sometimes available along with album purchases.

How much is Apple willing to pay?

Guessing the financial specifics of of such a deal is next to impossible, yet I will now do so in the spirit of irresponsible journalism. Here is a scenario which seems plausible (to me, at least):

Let’s be generous, and say between all 12 albums, The Beatles sell 3.6 million copies (300,000 each) in those 3 months of exclusivity on iTunes. Right now, Apple gets as much as 35% of the total price of tracks downloaded via iTunes, depending on the artist/label. However, with all the resistance The Beatles have given the online music industry, I highly doubt Apple will be able to negotiate that large a cut. I am guessing 25% at the MOST. That means Apple would make around $9 million in 3 months just off The Beatles sales. Not bad at all.

However, remember the costs. Out of that 25% Apple spends somewhere around half on infrastructure, bandwidth, and credit card fees, and perhaps more. So now Apple is down to $4.5 million. Still not bad. But they first have to pay $2.6 million to CBS for the Super Bowl spot. Now they have $1.9 million. But they need to MAKE the ad in the first place. That could be anywhere from $2 – $10 million to who knows what. If they manage to get Paul McCartney to appear in the ad, it could conceivably cost them another $10 million. (Ringo will likely appear for a free iPod, or a discount on an iPhone). That is the big unknown, the cost of the ad. Apple could totally wuss out and have some iTunes “silhouette people” dressed like hippies walking around with Beatles songs playing in the background and produce the whole thing for $300,000, but for a Super Bowl ad, i think you have to do more.

And there is always the chance that Apple will not make a commercial at all. Perhaps they will instead somehow make a half-time show announcement, or product placement of some sort. That could cost even more than the $2.6 million an ad would. No one knows, but it is fun to guess.

So the question is, “Is landing the Beatles on iTunes that big a deal for Apple?” Given the probable lack of a decent bargaining position they had going in to such talks, I doubt it. There are of course many variables that COULD make this a good deal for Apple. For instance, all my above calculations were made using the $9.99 for an album iTunes model. If The Beatles insist on a $15-$20 per album price, Apple’s 25% cut suddenly gets bigger, with no extra costs on their end. Or maybe Apple WAS able to negotiate a 35% cut of the sales (highly doubtful).

In the end, I feel that the Beatles tracks will sell well, but not to the point where Apple needs to take out a Super Bowl ad. Many Beatles fans, who already own all these tracks, will very likely want to hold the physical CD or DVD in their hands, thumb through the liner notes, and listen to the uncompressed audio tracks they have long waited for, free of any DRM. The only way I see this being a worthwhile idea for Apple is if they also use the ad to announce either: The new “real” video iPod, or announce iTunes will begin selling a higher bit-rate version of audio tracks to compliment the newly re-mastered Beatles albums. The idea of higher quality iTunes tracks has been talked about since the iTunes store first opened, and if Apple is ever going to make the jump, this would be an ideal opportunity for them to do so.

And of course, this is all based on “a source” for the Toronto Sun, so perhaps the only thing we’ll see at this year’s Super Bowl is Prince’s wardrobe malfunction.

Let’s hope for the Beatles thing.