Leadership Spotlight

Continued from previous page

Entertainment Becomes Digital

Paul Vidich, WG'81
Adviser for Video Strategy, AOL, New York and Dulles, VA

Before Paul Vidich completed a Wharton MBA in 1981, he was a journalist. Twenty-five years later, he still works in the media, but now he's the man being interviewed, not the other way around. And the media itself is generations beyond the trade magazines where he toiled pre-Wharton.

As a special adviser to AOL for video strategy, Vidich is immersed in the current debate over digital content distribution and copy-protection. In fact, he's one of the people that has shaped the debate—his work as EVP of strategy, business development, and technology for Warner Music Group helped make iTunes Music Store possible, proving that digital music could be profitable.

"I never wanted to be in a rock band, never had great aspiration to be in the music business," he confesses. "But I did have aspiration to be in the business side of the media."

When he graduated Wharton, he joined CBS Cable. It was a time of transformation, with cities being built up for cable, narrow-casting channels proliferating, and industry- defining successes being built by independent, entrepreneurial companies (such as CNN and ESPN) and larger media companies (such as MTV and Nickelodean).

By 1987, the industry was maturing and consolidating. Vidich moved to Warner Communications in a role of corporate development and acquisitions. In that capacity, he helped complete the merger between Time Inc. and Warner Communications. Time Warner almost doubled in size, rolling music operations into Warner Music Group, where Vidich became the executive in charge of strategy, business development, and technology.

At Warner Music, he considered several opportunities to grow the music business, and digital distribution over the Internet would be the means.

In 1998 he led Warner Music to a breakthrough, testing the ability to deliver music electronically over broadband in Time Warner Cable's San Diego service. "We showed that it could be done and the consumers liked it," he says.

But before this success could be leveraged broadly, along came Napster. In 1999, the little file-sharing application roiled the landscape of digital distribution. Napster became one of the fastest-growing Internet services ever—adopted by some 50 million people. Threatened music publishers and record companies cried foul over widespread copyright violations, and rancorous hearings and civil suits forced a legal shut-down. The one-time category killer Napster itself was out of commission, with nothing to replace it.

Despite industry outcry, the phenomenon proved that consumers were hungry for digital distribution. "We knew this new way of consuming music was going to transform the business," Vidich explains. "What was lacking at that time was a legitimate service that provided music in a way that was as convenient as Napster, but allowed the people who owned the underlying rights to make money."

Vidich clearly saw an opportunity for Warner to sell music within a legitimate service. However, music companies had never been technology providers, and their experiments in subscription services like Rhapsody and MusicNet met with indifference.

Then in 2001, Steve Jobs and Apple unveiled the iPod—a portable music player with a 5 GB hard drive that "put 1,000 songs in your pocket." But where would the songs come from? Someone had to feed iPods a regular diet of new music—something Apple couldn't provide alone.

That's where Vidich and Warner Music fit in.

"We saw in Jobs and Apple all the elements that were needed in order to provide the consumer platform for distributing music digitally," says Vidich. "We sat down with Steve and agreed that consumers needed to be able to use their purchased downloads in convenient ways. It may sound intuitive now, but it was counter intuitive at a time when peer-to-peer piracy was rampant.

"We did our deal with Jobs," says Vidich. "We introduced him to the CEOs of Universal Music, BMG, Sony, and EMI, and he replicated the deal that we had done."

The result was iTunes Music Store—a huge success right out of the gate, selling music from all four major labels (Sony and BMG subsequently merged) and (later) independents. The store proved what Vidich had long believed—that online music sales were viable. By February 2006, the store had sold over 1 billion songs—more than 80% of worldwide online music sales.

Says Vidich, "I believe if it hadn't been for the deal that Warner did with Apple, then the launch for iTunes wouldn't have happened. The iPod would never really have taken off the way that it did."

When Warner Music was sold in 2004, Vidich returned to Time Warner, joining AOL with a specific focus on creating video products and services that would have the same impact as the iPod and iTunes had on music.

As a student, he didn't perceive the media business as a popular destination for his classmates, but when opportunities in the industry called, and he answered.

"We didn't anticipate the technologies," he says. "Business school provided me with an analytical framework for looking at the world from a business perspective."