Revised music royalty rules could hurt Apple's Beats Music, iTunes Radio

Posted:
in iPod + iTunes + AppleTV edited August 2014
The U.S. Justice Department is in the process of deciding whether to revise the laws regarding music royalty rates --?changes that could have an effect on Apple's streaming music offerings Beats Music and iTunes Radio.



The music industry is currently trying to overturn the current licensing rules, which are heavily regulated by the government. At the moment, the industry is required to license songs to anyone who wishes to rebroadcast at a reasonable rate.

The two performance-rights organizations that represent the music industry are the American Society of Composers, Authors and Publishers, and Broadcast Music, Inc., both of which have been around for decades. Restrictions were originally placed on the companies around World War II because of monopolistic practices, but now both ASCAP and BMI are attempting to have some of those restrictions limited, which would give them more flexibility in setting the prices for music rights.

If ASCAP and BMI are successful, analyst Rod Hall of J.P. Morgan expects the outcome to hurt Apple, which is attempting to gain a stronghold on the streaming music market with its iTunes Radio streaming service, and Beats Music on-demand subscription offering.

"Upward pressure on streaming costs could be a negative for Apple's newly acquired Beats Music unit," Hall said in a note to investors on Friday, a copy of which was provided to AppleInsider. "Typically, attempting to pass this sort of cost increase through to customers after the low price Genie is out of the bottle is tough in a competitive environment."

radio


As the DOJ weighs the case, GigaOm this week offered a summary of how relaxing regulation on BMI and ASCAP would hurt streaming services like Apple's, along with market leader Pandora. Currently, the controlled royalty rates are at 1.7 percent of revenues for terrestrial radio stations, and 1.85 percent for Pandora.

But Pandora actually paid about 53 percent of its total revenue in royalties in 2013, because services like it and iTunes Radio must also pay for "sound recording rights." Terrestrial radio stations have avoided such fees thanks to their longstanding stature in American society and accompanying political clout.

Apple launched iTunes Radio last year as a Pandora-like service, serving up randomized tracks based on a user's music preferences. But with the music market moving toward on-demand subscription services, Apple also opted to purchase Beats, the premium headphone maker that also recently launched its Beats Music service. Both moves are seen as a way for the company to offset shrinking digital music sales.

Following the purchase of Beats, Apple put Beats Music CEO Ian Rogers in charge of iTunes Radio, uniting both streaming services under one leader at the company. Apple's streaming services remain behind market leaders Pandora and Spotify in terms of user adoption.
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Comments

  • Reply 1 of 65
    I thought iTunes Radio was ahead of Spotify: http://appleinsider.com/articles/14/03/11/6-months-after-launch-apples-itunes-match-already-more-popular-than-spotify

    So I'm not sure why the article says "Apple's streaming services remain behind market leaders Pandora and Spotify in terms of user adoption"
  • Reply 2 of 65
    macxpressmacxpress Posts: 4,787member

    I'm still trying to figure out why there's still both Beats Music and iTunes? Why does Apple need 2 music services that compete against each other? Surely, there has to be a way to merge them into 1 service. Maybe in time...

  • Reply 3 of 65
    First off, there are three performing rights organizations. Along with ASCAP and BMI there is SESAC (which is a for-profit PRO). It's small, relative to the big two, but does represent a few big-name artists.

    Secondly, as a member of ASCAP I think this is a good thing for artists and composers. The music industry (record & publishing companies particularly) have for decades finagled around ways to limit paying the artists their fair share of royalties and income. And now the streaming business, especially selective streaming, is making it worse.

    I'm trying to find an article I saw a few months ago with illustrates how badly skewed the whole thing has become. If I find it I'll post the link to it.
  • Reply 3 of 65
    mike1mike1 Posts: 1,847member

    Should affect Pandora more than Apple/Beats. Apple has cash and could easily afford any increase in the short term. Pandora has not yet made a dime, I believe, and this would only add to their financial woes.

  • Reply 5 of 65
    lkrupplkrupp Posts: 6,783member

    Damn! Just when I thought Apple wasn’t doomed... it’s doomed again. Also strange is how this stuff only dooms Apple all the time. Everybody else appears to be immune. Or at least that’s how this and other articles seem to spin it.

  • Reply 6 of 65
    mike1mike1 Posts: 1,847member
    Quote:

    Originally Posted by macxpress View Post

     

    I'm still trying to figure out why there's still both Beats Music and iTunes? Why does Apple need 2 music services that compete against each other? Surely, there has to be a way to merge them into 1 service. Maybe in time...




    It's only been a few weeks since the acquisition was closed. Give it some time.

  • Reply 7 of 65
    Keep in mind that using ASCAP or BMI are completely voluntary. There is also the Harry Fox Agency, another old timer in the music licensing business. None of these are required. They simplify (for publishers) the complexities surrounding royalty collections and licensing issues, but a music publisher could take care of these myriad details on their own also. In fact, it's arguably easier for a small publisher to manage the details now more than ever.
  • Reply 8 of 65

    Found the article. It was in The Atlantic.

  • Reply 9 of 65
    charlitunacharlituna Posts: 7,205member
    Quote:

    Originally Posted by macxpress View Post

     

    I'm still trying to figure out why there's still both Beats Music and iTunes? Why does Apple need 2 music services that compete against each other? Surely, there has to be a way to merge them into 1 service. Maybe in time...


     

    They just got clearance to finalize the deal like a month ago. Give them some time.

     

    As for the subject at hand, i think that it's good that its being looked at. Get one set of rules going with limits on both sides to ensure that neither party can easily screw over the other. Hopefully some limits will also be put in so that artists don't get cut out of funds with these deals. 

  • Reply 10 of 65
    Quote:

    Originally Posted by lkrupp View Post

     

    Damn! Just when I thought Apple wasn’t doomed... it’s doomed again. Also strange is how this stuff only dooms Apple all the time. Everybody else appears to be immune. Or at least that’s how this and other articles seem to spin it.


    Apple has been doomed since the late 90s and will still be doomed 50 to 100 years from now. I think the naysayers like to keep repeating that mantra to themselves to make it feel as real as possible...it's their escape from reality.

  • Reply 11 of 65
    charlitunacharlituna Posts: 7,205member
    Quote:

    Originally Posted by SpamSandwich View Post



    Keep in mind that using ASCAP or BMI are completely voluntary. There is also the Harry Fox Agency, another old timer in the music licensing business. None of these are required, they simplify (for publishers) the complexities surrounding royalty collections and licensing issues, but a music publisher could take care of these myriad details on their own also. In fact, it's arguably easier for a small publisher to manage the details now more than ever.



    I wouldn't be surprised if artists that sign up directly for sales on iTunes get or will soon get an option to allow their tracks on either or both services with clear reporting of how many plays right along how many sales and so on. Which would be a good thing

  • Reply 12 of 65
    A falling tide grounds all boats? Since streaming music is only a corollary business for Apple, this will not be the existential crisis it will be for others.
  • Reply 13 of 65
    apple ][apple ][ Posts: 8,428member

    We haven't heard the last negative news regarding Beats.

     

    There's more to come. I'll bet my left testicle on that.

  • Reply 14 of 65
    Quote:

    Originally Posted by SpamSandwich View Post



    Keep in mind that using ASCAP or BMI are completely voluntary. There is also the Harry Fox Agency, another old timer in the music licensing business. None of these are required. They simplify (for publishers) the complexities surrounding royalty collections and licensing issues, but a music publisher could take care of these myriad details on their own also. In fact, it's arguably easier for a small publisher to manage the details now more than ever.

    True that they are all voluntary, but they are necessary if you are to get paid for the sales and performances of your work. ASCAP/BMI/SESAC are PROs that track performances (concerts, restaurants, clubs, radio stations, TV stations, etc) and collect royalties. Harry Fox is a mechanical rights agency (MRO/MRA) which tracks sales of physical or permanent download product (CDs, LPs, MP3s, iTunes purchases), and collects royalties related to that.

     

    It's still unclear if it's "easier" for a small publisher to manage and collect all this data and royalties on their own. With the advent of the internet, there are countless avenues for products to be sold and/or streamed and broadcast. Plus all of the local as well as nationwide radio and tv/cable stations, clubs, concert venues, etc. etc. etc.

     

    You usually end up doing (at best) a co-publishing deal with a major pub. If you're just starting out, it's usually solely via the major pub. So, the majors need these agencies to make sure all involved get that are royalties due.

     

    If you're just starting out, and only playing local gigs with no physical/downloadable product, or limited sales, then yeah… no need for PROs/MROs. But once things start to take hold and your act starts getting noticed - even if you are doing things all on your own as a self-published self-released artist - you would be overwhelmed with the legal/accounting/paperwork/details/manpower necessary to recoup those royalties, taking away from your practicing/writing/performing.

  • Reply 15 of 65
    SpamSandwichSpamSandwich Posts: 30,837member
    trubador wrote: »
    True that they are all voluntary, but they are necessary if you are to get paid for the sales and performances of your work. ASCAP/BMI/SESAC are PROs that track performances (concerts, restaurants, clubs, radio stations, TV stations, etc) and collect royalties. Harry Fox is a mechanical rights agency (MRO/MRA) which tracks sales of physical or permanent download product (CDs, LPs, MP3s, iTunes purchases), and collects royalties related to that.

    It's still unclear if it's "easier" for a small publisher to manage and collect all this data and royalties on their own. With the advent of the internet, there are countless avenues for products to be sold and/or streamed and broadcast. Plus all of the local as well as nationwide radio and tv/cable stations, clubs, concert venues, etc. etc. etc.

    You usually end up doing (at best) a co-publishing deal with a major pub. If you're just starting out, it's usually solely via the major pub. So, the majors need these agencies to make sure all involved get that are royalties due.

    If you're just starting out, and only playing local gigs with no physical/downloadable product, or limited sales, then yeah… no need for PROs/MROs. But once things start to take hold and your act starts getting noticed - even if you are doing things all on your own as a self-published self-released artist - you would be overwhelmed with the legal/accounting/paperwork/details/manpower necessary to recoup those royalties, taking away from your practicing/writing/performing.

    It's not inconceivable that at some point Apple disintermediates these various agencies. Cutting out middlemen would streamline the music publisher's and musician's experience.
  • Reply 16 of 65
    jkichlinejkichline Posts: 1,331member

    The merger was completed less than a month ago. How fast could you merge two streaming music services?

  • Reply 17 of 65
    jkichlinejkichline Posts: 1,331member

    I'm not sure how this dooms Apple as compared to their streaming music business peers. If anything, they are ahead. If the cost of streaming music is too high, then it makes iTunes music purchases more desired. Apple wins.  Right now they are making almost nothing on streaming as compared to their other businesses.

  • Reply 18 of 65
    calicali Posts: 3,495member
    1 As long as it benefits the artist, this is great news.

    2. Why is only Apple doomed?

    3. Once Apple's services are merged their numbers will look a lot better but iHaters will find doom somehow.

    4. Beats sucks and isn't worth 3B because I hate black people and hip-hop!!!!!!!!!!!!!111111
  • Reply 19 of 65

    This is simply an evolution of the licensing rights in the music industry.

     

    I'm sure that Apple will find a way to license the music from the artists for streaming, that will compliment the way Apple can collect and distribute funds to those who sell apps on Apple's App Store.

     

    The artists most likely will receive residuals from either a song rental based model, a subscription based model, or an iAD revenue-sharing based model.

     

    Whatever makes the most cents.

  • Reply 20 of 65
    Quote:

    Originally Posted by Trubador View Post



    First off, there are three performing rights organizations. Along with ASCAP and BMI there is SESAC (which is a for-profit PRO). It's small, relative to the big two, but does represent a few big-name artists.



    Secondly, as a member of ASCAP I think this is a good thing for artists and composers. The music industry (record & publishing companies particularly) have for decades finagled around ways to limit paying the artists their fair share of royalties and income. And now the streaming business, especially selective streaming, is making it worse.



    I'm trying to find an article I saw a few months ago with illustrates how badly skewed the whole thing has become. If I find it I'll post the link to it.

     

    Do you really think that if the industry groups are able to excise more royalties you'll actually see any of it? Because if so, you're wrong. The solution isn't to change the percentage charged to broadcasters, which since it's a percentage and not a flat number automatically rises with inflation and should be fine in perpetuity. Instead, the answer is to force the industry groups to actually go back to distributing money fairly and giving the artists their share.

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