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While Apple US gave the song a picture sleeve and a remix to ensure that it was a hit, Apple UK remained unaware of its commercial potential. However, the chaos that was enveloping the Apple UK operation at the time was strongly evident with regard to this song.
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It was the group's last Top 20 single, peaking at #14 on the Billboard Pop Singles chart. Because Al Steckler, the head of Apple US, felt that it needed a stronger hook in the opening, he remixed the track with engineer Eddie Kramer in February 1972, applying heavy reverb to the snare during the first verse and middle eight. "Baby Blue" was released as a single in the US on 6 March 1972, in a blue-tinted picture sleeve and featuring a new mix. Ham composed the song on acoustic guitar and Molland claims to have helped streamline the song's linking parts. I don’t know whether they fell in love straight away, but he invited her on the road with us and she came along." Ham ultimately ended the relationship, partially as a result of Armstrong's lack of interest in Badfinger's recording and touring activities. Guitarist Joey Molland recalled, "She came to one of the shows, they got talking and Pete really liked her. Ham wrote the song about a woman named Dixie Armstrong, whom he had dated during Badfinger's last US tour.