Apple Corps Ltd

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Apple Corps Ltd

ORIGINS

APPLE RECORDS: 1968

ALLEN KLEIN TAKES CHARGE: SPRING 1969

DEPARTURE OF KLEIN IN 1973; RECORD LABEL WINDS DOWN

SETTLING FIRST LAWSUIT AGAINST APPLE COMPUTER

ANTHOLOGY A HIT IN 1995

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

ORIGINS

The story of Apple Corps Ltd. is also the story of The Beatles: John Lennon, Paul McCartney, George Harrison, and Ringo Starr. The four young men from Liverpool (with Pete Best on drums prior to Starr) began playing together as teens in the late 1950s, honing their craft at venues including the local Cavern Club and seedy bars in Hamburg, Germany. In December 1961 they signed a management contract with 27-year-old Liverpool record shop manager Brian Epstein, who would act as their adviser, secure them bookings, and try to win them a record contract. He subsequently formed a company called NEMS Enterprises, Ltd. (named for his family’s North End Rd. Music Stores), which paid the group salaries and living expenses while taking a 25 percent commission on all of their earnings except songwriting.

In May 1963 a partnership called The Beatles Ltd. was formed, owned jointly by the four band members (now including Starr), to manage their non-songwriting income. Earnings from musical compositions (primarily by Lennon and McCartney) would be handled by another new firm, Northern Songs Music Publishing, which was headed by former singer Dick James. By this time the group had signed with Parlophone Records, an imprint of industry giant EMI, and begun releasing a string of hit singles.

Over the next several years The Beatles’ catchy songs and engaging, irreverent personalities took them to the top of the world’s pop music charts and boxoffice rankings (both for concert performances and such films as A Hard Day’s Night and Help ), while their income landed them in England’s highest tax bracket, then notoriously close to 90 percent. Unhappy with the amount of money the government was taking, they began looking for strategic investments to help reduce their tax burden. In April 1967 a new entity called The Beatles & Co. was created as the first step in a thorough business realignment, though the process was sidetracked by the August death of manager Epstein, after which control of NEMS shifted to his brother Clive.

In the latter half of 1967 the group’s new business structure continued to take shape, with a company called Apple Music Publishing established to sign promising songwriters, taking half of their royalties in exchange for tracking earnings and promoting tunes to performers and radio. The name “Apple” had been suggested by McCartney, after a painting by surrealist artist René Magritte.

Though initially set up as a tax shelter, Apple was quickly infected by the creative spirit of The Beatles and evolved into something more ambitious and offbeat. After a second company was formed with Greek inventor John Alexis “Magic Alex” Mardas (Fiftyshapes, Ltd., later Apple Electronics), on December 7, 1967, a shop called The Apple Boutique was opened on Baker Street in London, with inventory that ranged from records and books to jewelry, clothes, psychedelic posters, and inflatable furniture.

The following month an umbrella company called Apple Corps Ltd. was officially established with the four Beatles as its co-owners, absorbing the operations of the 1963 partnership The Beatles Ltd. Apple would also own 80 percent of The Beatles & Co., with 5 percent stakes of the latter retained by each group member. The new structure would allow the bulk of their income to be taxed at the lower corporate rate.

By February Apple Corps Ltd. had been organized into five divisions, one being The Beatles musical group and the other four comprising Merchandising (Retail and Wholesale), Music (Publishing and Records), Electronics, and Films. The firm also announced plans for separate publicity, management, and arts foundation units, though these were never set up. Heading the enterprise would be Beatles road manager Neil Aspinall, who had studied accounting before taking a full-time job with the group in 1962. The company’s distinctive Granny Smith apple logo (shown cut in half on the reverse side of record labels) was soon registered in 47 countries, and quickly became an indelible part of The Beatles’ visual legacy.

APPLE RECORDS: 1968

The most active of the company’s business units would be Apple Records, which was run by 33-year-old Ron Kass, former head of the U.K. branch of Liberty Records. Distribution would be handled by Capitol in North America and EMI in the United Kingdom and foreign territories. While Beatles records would henceforth appear on Apple, the group remained officially signed to EMI and Capitol through 1976.

To house the rapidly growing firm, in July 1968 a five-story townhouse at the fashionable address of 3 Savile Row was purchased. It was soon renovated with cream-colored walls and green carpets, with a staff kitchen on the fourth floor and a recording studio under construction in the basement by Magic Alex. The Beatles’ high profile and their public encouragement of submissions resulted in a deluge of demonstration tapes, sheet music, film scripts, and more, while legions of fans, hippies, and freeloaders from around the world began arriving at 3 Savile Row hoping to catch a glimpse of their idols, or at least a handout.

KEY DATES

1968:: The Beatles found Apple Corps Ltd. as a music, record, film, and retail company.
1969:: New York lawyer Allen Klein takes control of firm and begins to cut costs.
1970:: The Beatles break up and litigation ensues.
1973:: With the departure of Klein, Neil Aspinall is named to head firm.
1975:: Beatles’ split is finalized; Apple label and recording studio are shut down.
1981:: First lawsuit against Apple Computer is settled.
1989:: Lawsuit against EMI is resolved; Apple wins creative control of group’s catalog.
1995:: The Beatles Anthology documentary airs, and new CD sets are released.
1996:: Firm receives $26.5 million to end second suit against Apple Computer.
2007:: Royalty dispute with EMI is settled, opening way for Beatles downloads; trademark lawsuit with Apple, Inc., ends; Jeff Jones is named to replace Aspinall.

Meanwhile, suffering from a poor location, esoteric and overpriced goods, and rampant theft, on July 30 the money-losing Apple Boutique was abruptly closed and its entire stock given away to the public. During its brief existence the shop reportedly lost $400,000.

A few weeks later the first four Apple single records were released, with The Beatles’ epic “Hey Jude” and Mary Hopkin’s McCartney-produced “Those Were the Days” quickly reaching the top of the U.K. charts and the top ten in the United States. In November the first Apple album, George Harrison’s experimental film soundtrack Wonderwall Music, was released, which was followed by the double-disc, individually numbered The Beatles (popularly known as “The White Album”) and the Lennon/Yoko Ono experimental collaboration Two Virgins, whose nude cover photos of the pair caused distribution problems and controversy. The fall had also seen the release of the animated film Yellow Submarine, for which Apple received onscreen credit, though the project had been started several years prior to the company’s formation.

At the start of 1969 Magic Alex’s recording studio was completed but found to be totally unworkable, its designer proving to have more imagination than technical ability. The Beatles were engaged in filming a television special about the recording of their next album, and when they decided to abandon the sterile confines of film studio Twickenham for Savile Row, mobile equipment from EMI had to be trucked over. The latter would come in handy when the group filmed an impromptu public performance (its last one ever) on the chilly Apple roof on January 30, 1969.

ALLEN KLEIN TAKES CHARGE: SPRING 1969

The free-wheeling character of Apple would change forever when its owners decided to turn the chaotic, money-hemorrhaging enterprise over to a new leader in early 1969. Allen Klein was a New York lawyer who had been involved with the music industry since the early 1960s and had managed such performers as Sam Cooke and The Rolling Stones, winning a reputation for being hard-nosed along the way. After seeking an audience with The Beatles he won over first Lennon, then Harrison and Starr, convincing them he could boost their earnings. McCartney was suspicious of Klein’s motives and also preferred his new father-in-law, Lee Eastman, a more refined New York entertainment lawyer, and did not sign the March 1969 agreement making Klein The Beatles’ manager and head of Apple in exchange for a 20 percent commission.

Klein’s initial efforts to buy out both NEMS (to which the group still paid 25 percent of its earnings) and the now-public Northern Songs failed, but he successfully renegotiated The Beatles’ contract with EMI to boost their royalty rate by more than 50 percent, and soon launched a purge of Apple in which about a third of its 50 employees were fired or quit, many of them executives. Several units were gutted including Apple Music Publishing, whose once promising work was taken over by Essex Music in exchange for a royalty cut, and Apple Films, which had bought the rights to J. R. R. Tolkein’s Lord of the Rings books though producing little of note, with the completely unprofitable Apple Electronics also shut down. After these moves original company head Neil Aspinall was left with little to do, and at McCartney’s urging he began spending his days assembling a collection of all known film footage of The Beatles.

In September 1969 The Beatles’ new Abbey Road album was released, the last the group would make as a unit. With Beatles solo discs beginning to appear, the still unreleased sessions recorded earlier in the year were handed over to American producer Phil Spector for reworking, while the television film shot at the same time was edited into a feature, Let It Be. Released the following spring by United Artists, the title song would also be the name of the group’s final album and single release.

Tension that had been brewing between The Beatles began to boil over after Klein’s arrival, and in April 1970 McCartney announced he was quitting the group, filing suit a few months later to dissolve their partnership. Apple’s annual revenues for the band’s last year together were £4.3 million, with a profit of £1.4 million reported.

In spite of the group’s split Apple continued to function, in 1971 cosponsoring George Harrison’s New York benefit for Pakistani relief and opening a new $1.5 million recording studio in the basement of 3 Savile Row, which was soon receiving heavy use. Apple Records also continued to release music ranging from rock to jazz to Indian classical, and having hit singles with Mary Hopkin and the Beatlesque rock group Badfinger. In 1972, however, Hopkin and Badfinger both left for other labels.

DEPARTURE OF KLEIN IN 1973; RECORD LABEL WINDS DOWN

On March 31, 1973, Allen Klein’s management contract with the group expired, and soon afterward Neil Aspinall again took charge of Apple with the blessing of all four Beatles. Offices that had been established in Los Angeles and New York were shut down, with the files from the latter transferred directly to Lennon’s apartment. Apple Records was running in low gear, with all of its remaining artists released from their contracts save Yoko Ono and Ravi Shankar. Apple Films continued to be active, however, with such projects as the Ringo-produced Son of Dracula. In the fall the company filed suit against Klein, alleging mismanagement.

In January 1975 The Beatles’ last legal ties were officially severed, their income (and Apple’s) having been handled by a court-appointed receiver since 1971. On May 6 Apple Records ceased operations (though the label was used for a few months afterward for Beatles solo discs), and by the end of the month all of the firm’s employees were gone save Aspinall and a half-dozen accounting and legal affairs staffers. The company also closed its still profitable recording studio, and its staff moved to smaller quarters across the street.

In early 1976 all non-Beatles Apple records were deleted and Beatles albums began appearing on EMI and Capitol in the various territories. The group’s contract with EMI had expired in February, though EMI/Capitol continued to own the rights to previously released Beatles material. In October Apple’s Savile Row building was sold, after which it stood empty for five years before being gutted and rebuilt due to structural instability, attributed in part to Magic Alex’s unauthorized modifications to the basement.

Aspinall and his staff were busy sorting out the tangled legal wreckage left in the wake of The Beatles’ breakup and Allen Klein’s four-year tenure, while examining old contracts to see whether all monies had been paid and determining what the company actually owned rights to. In October 1977 a back-and-forth legal battle with Klein was settled with Apple agreeing to pay him $4.5 million. He was later convicted of tax fraud for selling thousands of Apple albums designated as promotional copies, however, and served a short jail term. During the year a new Beatles record, Live at the Hollywood Bowl, was released, the first album of previously unreleased material by the group since its breakup and the first in nearly a decade to appear without an Apple label.

On December 8, 1980, as he returned home with his wife Yoko Ono from a New York recording studio, John Lennon was murdered by a deranged Beatles fan. Afterward Lennon’s one-quarter share of Apple passed to Ono, with whom he had recorded a new album for Geffen Records.

SETTLING FIRST LAWSUIT AGAINST APPLE COMPUTER

In 1981 Apple Corps settled a trademark infringement suit against a small California firm called Apple Computer. The company received $80,000, with the computer maker allowed use of the name if it stayed out of the music business. Revenues hit a peak of £6 million in 1982, but over the next several years slipped below £2 million annually while net earnings began to fall into the red for the first time.

Aspinall and Apple had by this time earned a reputation for conservative stewardship of The Beatles’ legacy, preferring to let the group’s work speak for itself and refusing to cheapen its image with media overexposure or garish merchandise. It frequently resorted to legal action to defend these interests, and in early 1986 won a total of $10 million from the producers of a stage and film musical called Beatlemania, which had used the group’s identity without permission. The next year Apple sued footwear maker Nike over its use of The Beatles song “Revolution” in television ads. Though approved by Michael Jackson, the owner of Northern Songs’ catalog, and licensed for $250,000 from Capitol Records, the ads were later dropped.

In 1987 Beatles music began appearing for the first time on compact disc, and two years later a complicated ten-year dispute with EMI over the issues related to The Beatles’ back catalog was finally settled out of court, with Apple reportedly winning creative control over the recordings and EMI retaining ownership of the master tapes. Future Beatles albums would once again sport the familiar Apple label.

In 1991 the company began reissuing long out-of-print music by such recording acts as Badfinger and Mary Hopkin, while the revived Apple Films released a documentary about The Beatles’ first trip to the United States, which included most of their famed Ed Sullivan Show appearances. A new unit, Apple Productions, was also created to assemble a definitive video history of the group, drawing on the material Aspinall had gathered two decades earlier.

In October the company settled a second lawsuit against Apple Computer with the California firm agreeing to pay $26.5 million. The suit had been launched several years earlier because of the computer maker’s addition of a musical digital interface (MIDI) feature to its machines.

In 1993 Apple Corps’ music publishing earnings surged when pop diva Mariah Carey had a smash hit with an old Badfinger song, “Without You,” though it split the proceeds with Warner Music Publishing per a Klein-era agreement with predecessor Essex Music.

In 1994, for the first time in nearly two decades, a collection of previously unheard Beatles music was released. The Beatles at the Beeb consisted of live-in-studio performances recorded by the British Broadcasting Corporation during the group’s heyday. It would go on to sell over nine million copies worldwide. The resurgent Apple also moved into new space, this time a four-story building on Ovington Square.

ANTHOLOGY A HIT IN 1995

In the fall of 1995 The Beatles returned to the limelight with the broadcast of The Beatles Anthology video series on television in more than 40 countries. The project was hugely profitable, with the U.S. rights alone bringing $20 million and worldwide TV income estimated at $75 million. A compelling blend of vintage footage and new interviews (with Lennon speaking via archival tapes), it touched off a new wave of Beatlemania that caused sales of the band’s music and merchandise to skyrocket. The series was accompanied by three double-CD sets that presented unreleased songs and alternate versions of existing ones, as well as the first new Beatles recording in 26 years, “Free As a Bird,” which became a hit single. Featuring the three surviving band members accompanying a 1977 Lennon work tape, it would be the first Beatles recording that Apple could claim full ownership of. The company also launched a clothing line called Apple Organics that featured Beatles and Apple images, which were promoted via inserts in the new albums. The clothing and related items would be marketed by new worldwide merchandising partner Sony Signatures. The Beatles’ back catalog was selling an estimated one million albums per year, with total record and music publishing earnings put at $12 million.

In the fall of 1996 an expanded version of the Anthology TV series was released on home video, becoming one of the year’s top sellers, and in 1999 the film Yellow Submarine was reissued in theaters and on home video, accompanied by an enhanced version of the original soundtrack album. Apple received a sizable cut of the proceeds from both. The following year a new Beatles hits album titled 1 was also issued, which would eventually sell more than 26 million copies worldwide.

On November 29, 2001, the 58-year-old George Harrison, who had survived a knife attack by a mentally ill intruder at his home, died of cancer. His interest in Apple subsequently passed to his widow Olivia and son Dhani.

In 2006 Apple’s earnings were boosted by the album Love, a musical collage “mash-up” of various Beatles songs and outtakes that had been concocted by longtime producer George Martin and his son Giles for a Las Vegas Cirque du Soleil production. Apple also received a licensing fee from the show.

The Beatles’ catalog had sold a total of more than 600 million albums worldwide. Though the closely held firm revealed few financial details, it had reported a loss of $956,000 for 2005, while also making payments to McCartney, Starr, Ono, and Olivia Harrison for “promotional services” of $2.2 million each.

By this time, the firm was once again in the midst of lawsuits against both Apple Computer and EMI. The former had found tremendous success with its iPod portable music player, and when it began selling music downloads on the Internet in 2003 via the iTunes Music Store, Apple Corps had sued. In late 2005 the firm also went after EMI for $59.2 million in unpaid royalties, dating to the period from 1994 to 1999, when efforts to mediate the dispute broke down.

In early 2007 Apple, Inc., (as the computer maker was now known) agreed to settle the firm’s claim for an undisclosed amount put by some observers at $50 to $100 million, receiving full control of the Apple name which would henceforth be licensed back to Apple Corps. The EMI suit was resolved a few weeks later for an undisclosed amount as well, which cleared the way for The Beatles’ catalog to be sold as downloadable files, preparation for which was revealed in court documents. Rumors were soon rampant that Beatles songs would be available on iTunes or that a special “Beatles Edition” iPod would be released.

In April 2007 45-year Beatles employee Neil Aspinall announced he was leaving the company to pursue new ventures, reportedly having clashed with Apple’s board about allowing digital downloads. The 65-year-old “fifth Beatle” would be replaced by former Sony Executive Vice-President Jeff Jones, who had helped reissue the catalogs of Bob Dylan and Miles Davis, among others. The company’s annual earnings were estimated at more than $10 million.

Nearly 40 years after British music icons The Beat-les founded Apple Corps Ltd. to manage their business interests, the firm continued to serve as custodian of the group’s legacy, carefully supervising the rerelease of its music and films, as well as sales of related merchandise. Interest in the “Fab Four” showed no signs of abating, and the firm was readying itself for a new wave of interest when their music was made available for download.