This Rookie Mistake Cost The Beatles $100,000,000

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This Rookie Mistake Cost The Beatles $100,000,000
John Greathouse
Contributor
7/25/2015


The Beatles’ Manager, Brian Epstein, was a 30-yr old, former furniture salesman when Beatlemania hit America in 1964. When he was approached by savvy Nicky Byrne to license the Beatles’ name and likeness for various novelty products and toys, he firmly stated that he would not accept a penny less than 10%.

Nicky had a difficult time hiding his surprise, as the typical range for such licenses was between 30% to 50% of the product’s price. Mr. Byrne quickly signed dozens agreements with merchandisers that subsequently cost the Beatles approximately $100,000,000 in lost royalties. Mr. Epstein later re-negotiated the Beatles’ share to 45%, but by then, Beatlemania was on the wane and the financial damage had been done.



Get Out Of The Zone

As shown below, every negotiation entails a buyer and seller comfort zone. In order for a deal to be consummated, an intersection of these zones must exist. In the example below, agreement is achievable between $145 million and $185 million. In general, an agreement cannot occur outside of this range, unless new data, coupled with a persuasive argument, are introduced in order to drive the buyer or seller outside of their initial comfort zone.

Brian Epstein Had No Clue, Let Alone A BATNA




“It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.” Mark Twain

In the case of the Beatles merchandizing, the sophisticated New York businessmen would have been extremely happy with any percentage below thirty and likely would have accepted any rate below forty percent.

Yet, because he was afraid to appear unknowledgeable, Mr. Epstein blurted out a percentage that effectively moved the negotiations outside of the expected shared comfort zone, costing the Beatles more money than they ended up making from their record sales.

While ignorance may be bliss, it is an awful foundation upon which to negotiate. When in doubt, keep your mouth shut and allow the other party to establish one of the boundaries of the shared comfort zone. If you are unsure of the fairness of their initial proposal, seek additional information to determine where it falls within the expected range.

If a seller names a price at the outset of a negotiation, they effectively establish the upper bound of the negotiations. Once a sale price is communicated, the buyer is then incentivized to negotiate your initial proposal downward.

If you name an outrageously high price, you may scare away the would-be buyer. If you set an initial price that is too low, as did young Mr. Epstein, then you will effectively reset the comfort zone and make it nearly impossible to negotiate an equitable, market price.

Without Whom…

Despite his frequent business blunders, the Beatles would have remained an obscure bar band if it had not been for Mr. Epstein’s career guidance and tireless promotion, which led to their recording deal with EMI. This reality was recognized by the Beatles, who appreciated Brian’s contribution to their success and excused his inadequacies. As Paul McCartney has graciously noted, “British people didn’t know that stuff at that time. I think he looked to his dad for business advice, and his dad really knew how to run a furniture store in Liverpool.”

Image credit: Associated Press