Right on Cue: Can iTunes chief fix Apple's maps and Siri?

An executive shuffle has dropped two troubled services into the hands of Eddy Cue. CNET has a behind-the-scenes look at Apple's master negotiator and product resuscitator.

Few consumers know his name, but Eddy Cue, Apple's iTunes chief, was instrumental in keeping those iPods, iPhones, and iPads loaded with movies, music and books -- and that helped turned Apple into a $560 billion company. Cue, left, is pictured with News Corp. Chairman Rupert Murdoch Sarah Tew

In Apple's never-ending negotiations with record labels, iTunes boss Eddy Cue often played the good cop to Steve Jobs' bad cop. But for current CEO Tim Cook, Cue may well be Mr. Fix-It.

In a surprising executive shuffle, Apple announced Monday that Scott Forstall , who runs software development for the iPad and iPhone, would be leaving the company, along with retail chief John Browett. Cue, an Apple employee for 23 years who was chief of iTunes since it launched in 2003, has now absorbed control of the Siri voice recognition service and the disappointing Apple Maps.

For the affable Cue, a diehard Duke University basketball fan, sports car collector, and studious avoider of the spotlight, the added responsibilities are the latest indication of the regard with which he's held both inside and outside Apple.

"There's nobody quite like Eddy Cue at Android or any of the other competitors," said Bob Bowman, president and CEO of Major League Baseball Advanced Media (MLBAM), the company that manages Internet rights for pro baseball and sells baseball-themed apps on iTunes. "Eddy is genius, brilliant, thoughtful, and tough. There's nothing that we've asked for that they've just said, 'Fine.' "

Apple
The 48-year-old Cuban-American played a major role in the creation of Apple's Web store, iTunes, and iPods. And as Apple's senior vice president of Internet Software and Services, he's kept the peace with key partners and helped fix product messes. Few people know that five years ago, he helped prevent the relationship between Apple and the large record companies from collapsing when the sides almost "went nuclear." When MobileMe, the division that oversaw Apple's Web services and software, appeared to run hopelessly off track, it was Cue who salvaged the operation and transformed it into iCloud.

Besides being Jobs' top troubleshooter and door opener with entertainment companies, Cue was in the pivotal position of ensuring that Apple's iPods, iPhones and iPads were kept stuffed with movies, music, and e-books. And lest we forget, it was such entertainment media that helped fuel demand for Apple's mobile devices -- in turn, making the company, with its $560 billion market cap, one of the most valuable in the world.

That Forstall, at times a divisive personality inside Apple, is reportedly being shown the door not long after Cue was promoted and received a bonus worth $37 million, doesn't come as a surprise to Apple watchers. One former Apple employee says Cue has a "high degree of social intelligence." That's something many of his peers in tech and even Jobs often lacked. Through a spokesperson, Cue declined to comment for this story.

The tough negotiator
That's not to say the salt-and-pepper-haired executive is a pushover. Executives who have faced off with Jobs and Cue in contract talks say that "Eddy did a lot of bad cop, too."

In April 2006, Warner Music Group, one of the top four record companies, held an internal event near Palm Springs, Calif., for those who worked in the label's "artists & repertoire" unit and other creative departments, according to people with knowledge of the event. One of the guest speakers was Cue.

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At the time, negotiations between Warner and Apple over renewing iTunes' music licenses had stalled. The Warner execs thought they had the ideal opportunity to persuade Cue to relent on key negotiating points. According to sources who spoke with CNET, an hour before Cue was to take the stage, the Warner execs met with him and made an offer they had convinced themselves couldn't be refused. Like all the other top labels, Warner wanted price flexibility at iTunes and also wanted the store opened up to digital music players other than those built by Apple. At the time, all iTunes songs sold for 99 cents and played only on iPods.

Cue listened quietly while the Warner executives informed him that all songs were not created equal and prices should reflect that. They pressed him, saying they couldn't accept Apple's terms and time was short because their contract was due to expire soon. But as soon as the Warner execs finished, Cue said calmly and without hesitation that Apple wasn't going to give in to their demands. If the contract expired without a new deal in place then Apple would simply pull their songs from iTunes. He got up and made his speech.

Warner renewed its iTunes deal and song prices remained unchanged at Apple's music store for another three years.

No, Cue didn't get to where he is by giving away the store. But Apple now faces a far more competitive environment. Amazon's Kindle tablets and mobile phones powered by Google's Android operating system are challenging the iPad and iPhone. Both companies are closing the gap in terms of their entertainment lineups. On Monday, Google announced that, for the first time, Android offers movies from all the top film studios and songs from all the major music labels.

A tougher road ahead
Greater competition appears to be cutting into Apple's influence in important entertainment categories. Music sales at iTunes are flat, according to music industry insiders. At Apple's expense, rivals such as Spotify, a subscription on-demand music service and Pandora, the popular Web radio service, have grabbed scores of music listeners.

Sales and rentals of movies and TV shows from iTunes have never generated significant revenue for the studios and TV networks, according to executives there. In e-books, Apple's strategy blew up when the U.S. Attorney General accused Jobs and Cue of conspiring with the country's top book publishers to fix e-book prices in an effort to partly benefit Apple's iPad. Apple has denied wrongdoing.

And there's no question that if the fabled Apple television is to become a reality, Cue will be working overtime in negotiations to get shows and movies onto that device.

All that leaves Cue, master negotiator and product resuscitator, in a more important role than ever inside Apple. In interviews with 10 executives from the music, sports, TV and film industries, Cue is described as someone who impressed counterparts at the entertainment companies by spending significant amounts of time learning their businesses. Cue tried, if he could, to help friendly execs from the other side of the bargaining table to meet their business goals and look good in the eyes of their bosses. He sent gifts. He was quick to return calls. To many execs past and present at the major labels and Hollywood studios, Cue became a friend.

It was Cue who started the practice of doing quarterly reviews with the top labels, said one music industry executive, something most vendors do now with the record companies. In these reviews, iTunes execs and the music labels discuss sales performance, release schedules, emerging new artists and promotions. The goal, of course, wasn't just to make nice. Cue was trying to maintain strong links and keep his company's services ahead of the competition.

Unlike managers from some of Apple's top rivals, Cue was careful not to condescend to music execs, avoiding digs like Jobs' comment that they were "technologically innocent." Instead, Cue told music honchos, "You guys are experts at creating great content and we are experts at enabling consumers to experience that content."

The Apple agenda
Cue built even more credibility by not trying to hide Apple's intentions. In 2004, Cue stated very clearly that Apple was interested in selling media as a means to sell gadgets. "There's a better margin in iPods than in the record business," Cue told the trade journal Music Week.

"He wasn't altruistic, certainly," said Chris Castle, an attorney who has worked with music-tech companies for years and has negotiated with Cue. "He had an agenda, of course. My impression was that he was very clearly about Apple's interest, but it was clear he also wanted to be fair. Apple never tried to steal music like many of these other guys. They cared about content. It was never about what they could get away with. With Eddy you felt you had a fair hearing."

To some in the music industry, Cue's finest hour may come when he helped avoid a war between Apple and the top labels. In 2007, Doug Morris, the then CEO of Universal Music Group (UMG), notified Apple that the music label would no longer sign multi-year contracts. Their licensing deals would be renewed on a month-to-month basis.

UMG's move sent a not-so subtle message: the record company would go dark on iTunes unless the music service started giving the label more control on pricing and opened up the iTunes ecosystem to other music sellers. Not long after, Sony Music also threatened to pull out of iTunes. In 2009, Cue responded by notifying all the labels that Apple would renew licenses on a monthly basis. The parties could terminate their contracts with 30 days notice.

Cue then made the argument that this game of brinksmanship was mutually assured destruction. He told the labels, "We all got nukes and we all can terminate at any time." But he implored them to embrace restraint, emphasizing that conflict wasn't in anyone's best interest.

"Ever since he did that, the relationships have fared so much better," said one music industry exec. "You have a point in time when everyone was going to draw their weapons, but the extremely shrewd way Eddy handled it took all the fight out of the industry's sword rattlers."

In December 2009, Apple announced it would allow record companies to raise song prices to $1.29 as well as lower some songs to 79 cents. In exchange the labels agreed to strip their music of the much maligned digital rights management.

Still, Cue hasn't built the same warm relations with some publishers as he has music producers. After negotiating with Cue, one frustrated publishing executive told Adweek last year that Apple doesn't "operate according to normal standards of conduct."

The Duke guy
Cue is one of the entertainment industry's smartest chess players, but there's little in his background that seems to have prepared him for the job of building an iconic entertainment hub or working for a taskmaster like Jobs.

Cue grew up in Miami. At Deerborne High in Coral Cables, Fla., he played on on the varsity basketball team. He was popular, says Danielle Morano Salman, a high school classmate. "He stood out," she said. "He was always in the advanced classes. He was friends with everybody and he always had a vision for himself...he always knew he would go to Duke University."

Eddy Cue (sitting, second from left), is a graduate of Duke University and a huge Blue Devil fan. Coach Mike Krzyzewski joked that the night Cue sat on the team's bench may have been 'the first time in his adult life he's worn a tie.' Duke Blue Planet

Cue graduated from Duke with undergraduate degrees in economics and computer science in 1986. Blue Devils basketball is one of his passions. His office is covered in posters and photographs of former standout Duke players. Cue's been photographed on the Duke bench. Mike" Krzyzewski, Duke's legendary basketball coach, says he and Cue "are close."

"He's unbelievably enthusiastic, very passionate and one heck of a competitor," Krzyzewski told CNET. "All of those are great attributes to be successful as a coach or in business."

Cue started in Apple's IT department when he joined Apple in 1989 and quickly moved up to overseeing areas in the software engineering and customer service units. In 1998, he helped build Apple's online store.

On April 28, 2003, Cue was at the helm when the iTunes Music Store (now just called the iTunes Store) launched. The dazzling success of the Web retail outlet is Silicon Valley lore now. A little over a year after launch iTunes had sold 100 million songs. Three years later, the site had sold 1 billion songs. As of this September, more than 20 billion songs had been sold at iTunes.

Jobs' negotiating style was far different than Cue, said Castle, the music industry attorney. "You haven't lived until Steve Jobs has called you a primitive thinker," Castle said. Jobs wasn't much easier on his own employees, but Paul Vidich, the former Warner Music executive who helped strike the first label deal with iTunes, remembered Cue as someone who had the perfect temperament for Jobs.

Apple CEO Tim Cook James Martin/CNET
"If you were going to be successful with Steve you couldn't compete for oxygen," Vidich said. "You had to allow him to be him and shine in the greater glory that Steve sought for himself, and Eddy had this calm demeanor. He never said: 'Hey look at me,' to anyone. He just did a great job."

"Eddy doesn't care about those other guys, the flashy executives who want the spotlight," said an executive who has negotiated with Cue. "He's the kind of person who is happy to be in the engine room making sure that everything is clicking along."

There's little doubt Jobs trusted Cue with big salvage jobs. Jobs turned over the foundering MobileMe online services to Cue in 2008 after the division launched to scores of glitches. In October 2011, MobileMe turned into iCloud. Apple said in July that the service now has 150 million users.

What's next?
Now that Cue is alone at the helm of Apple's content business, some who know him say he's plenty tough and smart enough to keep iTunes well stocked with apps and entertainment content.

"He knows the power he has over people that want to sell through his store and the power he has over the music labels," said one music vendor, who remembers trying to get Cue to come down on the 30 percent fee Apple requires to offer apps on iTunes and Cue literally sat back in his chairs and put his feet up on his table. "It's good to be Apple. Though it's difficult to negotiate with someone's feet."

In the end, the vendor didn't get the deal he wanted.

Vidich says that he's betting Cue has developed the skills to lead iTunes without Jobs and has the benefit of overseeing an established service.

"I really respected [Cue] and his thoughtful, calm demeanor," Vidich said. "Unlike a lot of tech people he listened to us when we were doing his deals. He was under Steve's shadow in the licensing discussions... but he really grew into his position over the last five years."

For Apple to continue to thrive, Cue will have to continue to grow and negotiate and, most of all, fix the problems he inherits.

Correction, 10 a.m. PT: This story erred in the spelling of the name of the CEO of Major League Baseball Advanced Media. The correct spelling is Bob Bowman.

 

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