four labels “usually require this minimum guarantee,” said T.J. “They want
you to commit to a certain number of licenses that you have to promise
them. You will be serving so many millions of users. And you have to pay
accordingly up front.” The risk, in other words, fell almost entirely on
Samsung. There were no credits or refunds. But the deals offered by
Universal and Sony were still very good.
Samsung’s hardware executives, led by J.K. Shin, on the other hand,
“just couldn’t believe that we had made such a stupid deal,” T.J. told me.
The lifelong Samsung executives in hardware and finance believed selling
music should be like selling semiconductors: The order came in, you
manufactured a certain number of chips under your client’s parameters, and
you shipped them off. You didn’t have to bet on the success or failure of
the product. But Samsung was wading into new waters with software
developers. Samsung’s hardware people believed that if customers weren’t
using their app to download music, Samsung should get some refund from
the labels.
T.J. and Daren were disappointed. They were being asked to institute
radical change in how such deals were structured. But their hands were tied
under the short-term hardware dictates of racing to bring out the next
smartphone. Chairman Lee’s long-term strategic vision was missing from
the company’s discussions.
T.J. and Daren flew back to Los Angeles and attempted to renegotiate
terms—terms that the music executives thought were already settled. They
managed to cut some licensing deals in half. T.J. and Daren conveyed the
terms of their new deals back up Samsung’s hierarchy, only to see them
rejected once again as too risky. The process continued until the labels and
movie studios finally abandoned Samsung out of frustration.
Daren called it the Samsung tax—take the deal a Hollywood studio had
with everyone else and increase the studio’s costs by 50 percent; that’s the
burden of working with Samsung. The company clearly didn’t get it.
“I ended up burning most of my music industry relationships because of
Samsung,” Daren said.
By the end, T.J. and Daren were pushing for stratospheric and
completely unrealistic streaming rights. Within a year, Sony executives,
once excited about Samsung’s content foray, were incensed. Daren had to
sit through unpleasant negotiations with Sony Music’s digital media
president, Dennis Kooker, who clearly was not happy.