Apple hunting after lower royalties for Apple Music & iTunes content

Posted:
in iPod + iTunes + AppleTV
Apple is reportedly in negotiations to reduce the royalties it pays for content on Apple Music and the iTunes Store -- specifically, trying to bring amounts closer to what rival Spotify pays.




Apple's current deals with record labels expire at the end of June, Bloomberg sources said on Wednesday. The people noted, however, that rather than being a hard cutoff, associated parties will likely extend the deadline until an agreement is reached.

To date, labels have allegedly been taking a 58 percent cut from Apple Music subscriptions, a figure higher than most major services. Spotify, though, recently managed to lower its equivalent rate from 55 to 52 percent, with the tradeoff that it has to hit specific targets for subscriber growth. Apple is pursuing the same kind of deal, the sources said.

The labels have meanwhile asked Apple to commit to promoting iTunes in markets where streaming is less prevalent, such as Germany and Japan. In the U.S., music download sales have fallen in the past few years to 24 percent -- likely owing to faster internet connections, and the potential savings of streaming. While a Spotify or Apple Music subscription typically costs $9.99 per month, that money would buy just a single album on iTunes.

Apple is said to have offered high Apple Music royalties as a way of luring in labels who were worried the service would bite too deeply into iTunes. With 27 million subscribers, the company may now feel more comfortable about asking for concessions.

Initially Apple even planned to skip paying royalties from listeners' free trials, but backed off after an open letter by pop star Taylor Swift.

Comments

  • Reply 1 of 20
    coolfactorcoolfactor Posts: 1,246member
    In traditional retail, a markup of 30% by retailers is standard. But my question is — how much is the artist actually getting from that river of money? They really should get the majority portion, but I believe they only get around 5%?
    dysamoria
  • Reply 2 of 20
    melgrossmelgross Posts: 30,368member
    So they're going back on their promise of continuing to pay the higher amount they agreed to in the first place.

    ironically, Spotify, which was attempting to negotiate an even lower price than they've been paying, announced a short time ago that they would be willing to pay the higher royalty fees Apple is paying.

    so ain't that the bees knees!
    78Bandit
  • Reply 3 of 20
    melgrossmelgross Posts: 30,368member
    In traditional retail, a markup of 30% by retailers is standard. But my question is — how much is the artist actually getting from that river of money? They really should get the majority portion, but I believe they only get around 5%?
    In traditional retail, markup is all over the place, and can range from a whopping 60% to a low of 20%. 40% was considered standard for music and books. Apple's 30% was actually very generous.

    royalty payments are very different, and don't bare any relation to retail price for music, traditionally. That's because the costs of producing, marketing, new artist development and distributing these products was much higher than the several cents per airplay, or on disk payments.

    but streaming is even different from that, because the model is different. Payments per play are extremely low, but the assumed number of plays is supposed to make up for it. But no streaming service has ever made a profit at the $9.99 monthly price charged. Almost all have gone out of business, and Spotify and Pandora both lose a lot of money each year. It's assumed that Tidal does too, but it's privately owned, so the numbers aren't available.
    edited June 2017
  • Reply 4 of 20
    In traditional retail, a markup of 30% by retailers is standard. But my question is — how much is the artist actually getting from that river of money? They really should get the majority portion, but I believe they only get around 5%?
    Out of the 70% that is paid by Apple:

    1. A set percentage is given to the songwriter - this is determined by law passed by Congress.

    2. The rest is given to the music label.

    The music label then gives a cut of their revenue to the artist.

    The music label first takes out their expenses. 

    This includes paying the CEO, the administrative staff, the marketing staff, the cost of marketing and advertisement, the cost of the recording studio (rent, etc.), the the producers of the song, the engineers, the paid musicians, etc. 

    Just like making a film, there are a lot of people involved in making a song. 

    What trickles down is left to the artist.

    Artists who write their own songs and own their own label get to keep all of the revenue from Apple - minus their expenses. 

    Artists who don't write their own songs and are signed to a label are actually employees of that label. 

    The label determines how much they get paid - sometimes nothing, sometimes minimum wage, etc.

    The artists who complain about getting nothing are the ones who are employees of the label.

    So if the artists complain about getting nothing, they should complain to their lable, not Apple.

    Or the artists should create their own label. The smart ones do.

    FolioRayz2016
  • Reply 5 of 20
    Looks like Taylor Swift's move to let all of her songs play on Spotify - and accepting Spotify's lower payments - has caused Apple to realize what is good for the goose is good for the gander.

    If Taylor Swift is OK with the lower Spotify payments, then Apple should also lower their payments to Spotify's level.


    radarthekat
  • Reply 6 of 20
    FolioFolio Posts: 260member

    Could be too that Tim Cook did some reading and saw the bar he set for Apple services just got higher. 

    Reaching the level of a Fortune 100 company now will require more than $27.5 Billion in revenue, according to the latest ranking in Fortune’s 15JUN2017 issue. Capital One Financial is ranked 100 with $27.5 B in sales in 2016. And Facebook finally cracked the top 100 list this year, reaching No.98 with $27.6 B revenue. (The reason Facebook’s market cap is a staggering $450B has to do with such things as its huge base, diversity, growth, and that it already ranks No.20 in Fortune 500 profits.)

    If Apple (entire company ranked No.3 with 216 B in sales) can pull it off this fast in services, that will be no small feat. Let's hope Apple can do it by keeping artists as happy as their fans.

  • Reply 7 of 20
    FolioFolio Posts: 260member
    Looks like Taylor Swift's move to let all of her songs play on Spotify - and accepting Spotify's lower payments - has caused Apple to realize what is good for the goose is good for the gander.

    If Taylor Swift is OK with the lower Spotify payments, then Apple should also lower their payments to Spotify's level.


    Yes, Taylor Swift deservedly makes headlines now. I hope Apple uses its advantages over Pandora and Spotify and others to nurture young performing talents. Beyond things like TV show The Voice, e.g. either giving exposure in community spaces in newer stores, or less obviously at city parks. Unknown artists have long memories who helps in early days.
  • Reply 8 of 20
    radarthekatradarthekat Posts: 2,373moderator
    Folio said:
    Looks like Taylor Swift's move to let all of her songs play on Spotify - and accepting Spotify's lower payments - has caused Apple to realize what is good for the goose is good for the gander.

    If Taylor Swift is OK with the lower Spotify payments, then Apple should also lower their payments to Spotify's level.


    Yes, Taylor Swift deservedly makes headlines now. I hope Apple uses its advantages over Pandora and Spotify and others to nurture young performing talents. Beyond things like TV show The Voice, e.g. either giving exposure in community spaces in newer stores, or less obviously at city parks. Unknown artists have long memories who helps in early days.
    I've long thought Apple should cut out the labels by subsidizing studio time and other music production costs (back up musicians, etc) for promising young artists, in exchange for some period of exclusivity on Apple Music.  Apple could highlight these upcoming artists within its Apple Music service, providing a spotlight on them and enhancing discovery.  This would be a service to both the artists and to Apple's Music customers.  After the period of exclusivity the artists could be cut loose but supported with the tools needed to remain independent (contract boilerplate, etc) further cutting out the traditional labels to ensure these new artists never become, as Jameskatt2 (no relation) describes, 'employees of the labels' and thereby continue to receive the lion's share of income from their work product. 
    edited June 2017 dysamoria
  • Reply 9 of 20
    kevin keekevin kee Posts: 829member
    What worry me is that artist or/and labels ask for higher royalties from Apple but let Spotify set their own terms just because they perceive Apple has more money. Perception can be deceiving.
  • Reply 10 of 20
    paxmanpaxman Posts: 4,546member
    kevin kee said:
    What worry me is that artist or/and labels ask for higher royalties from Apple but let Spotify set their own terms just because they perceive Apple has more money. Perception can be deceiving.
    In this case perception is truth. Apple has more money. 
  • Reply 11 of 20
    croprcropr Posts: 770member
    Looks like Taylor Swift's move to let all of her songs play on Spotify - and accepting Spotify's lower payments - has caused Apple to realize what is good for the goose is good for the gander.

    If Taylor Swift is OK with the lower Spotify payments, then Apple should also lower their payments to Spotify's level.


    Maybe Taylor Swift just wants to increase the addressable market for her music.  If you have royalties from Apple Music, why not add royalties from Sptofy as well, even if they are lower.  I never understood that an exclusivity is good for an artist, definitely not in the long run.
  • Reply 12 of 20
    rogifan_newrogifan_new Posts: 2,834member
    So Apple just wants to copy Spotify now? why does an apple just cut out the middleman and offered to pay artists directly?
  • Reply 13 of 20
    igorskyigorsky Posts: 400member
    kevin kee said:
    What worry me is that artist or/and labels ask for higher royalties from Apple but let Spotify set their own terms just because they perceive Apple has more money. Perception can be deceiving.
    This is also Apple's claim against Qualcomm, that they are overcharging Apple based on the fact that the iPhone costs more than others. 
  • Reply 14 of 20
    igorskyigorsky Posts: 400member
    So Apple just wants to copy Spotify now? why does an apple just cut out the middleman and offered to pay artists directly?
    This will work up until the labels pull all their artists from Apple Music. Also I don't think you understand what copying is. 
  • Reply 15 of 20
    carnegiecarnegie Posts: 362member
    So Apple just wants to copy Spotify now? why does an apple just cut out the middleman and offered to pay artists directly?
    What middlemen are you referring to? Labels, publishers, and performance rights organizations?
  • Reply 16 of 20
    78Bandit78Bandit Posts: 174member

    I believe Apple thought they could raise the bar by paying higher royalties and the recording companies would eventually force the higher rates onto other streaming services like Spotify.  These higher rates would eventually eliminate the competitiveness based on price the other companies were engaging in; they would either raise their prices to offset the higher royalties or they would suffer great losses and go out of business.  Very much like they tried to do with eBooks, although they apparently didn't try the illegal collusion this time around.

    That didn't work this time either and now Apple is faced with a dilemma.  Either keep paying the voluntarily higher royalties which fits in with their original argument of supporting the artists, or fight to cut artist payouts so they can maximize their profit.  Guess which one they chose.

    singularity
  • Reply 17 of 20
    cropr said:
    Maybe Taylor Swift just wants to increase the addressable market for her music.  If you have royalties from Apple Music, why not add royalties from Sptofy as well, even if they are lower.  I never understood that an exclusivity is good for an artist, definitely not in the long run.
    That is, if that artist doesn't go into activism.. But if s/he does, by creating a drama around low payments in the industry and finally getting it his way (from Apple), while accepting lower payments from another streaming industry player, that would make him/her a bit (just a bit) of a hypocrite.
  • Reply 18 of 20
    indyfxindyfx Posts: 318member
    In traditional retail, a markup of 30% by retailers is standard. But my question is — how much is the artist actually getting from that river of money? They really should get the majority portion, but I believe they only get around 5%?
    There are two sets of royalties involved, performance or "sync" rights and songwriter (or lyricists) or authoring royalties.
    Spngwriter/lyrisists make a small portion (of proceeds) anytime their music or lyrics are used (or sometimes if another song come close to one of their works)
    Sync wrights (or performance royalties) are are extremely variable, this is where you mostly hear about an artist making pennies on the (end sales) dollar. Most of this is just based on misunderstanding the nature of the business. Songs are expensive to produce (studio time, producers, backing musicians etc.) and even more expensive to promote (this can be huge $$) If you are Adelle or Taylor Swift (who are almost guaranteed to have huge sales $) you can cut a good deal with a label. If you are an unknown (or little known) you are asking the label to invest possibly $100K into production and double that (up to possibly $1M) into promotion of a product that is a -big- gamble. No they won't be willing to give you a major slice of those proceeds should it be successful. (keep in mind, on the other hand if your project crashes and burns you aren't on the hook for the losses, the label is)
  • Reply 19 of 20
    melgrossmelgross Posts: 30,368member



    Folio said:
    Looks like Taylor Swift's move to let all of her songs play on Spotify - and accepting Spotify's lower payments - has caused Apple to realize what is good for the goose is good for the gander.

    If Taylor Swift is OK with the lower Spotify payments, then Apple should also lower their payments to Spotify's level.


    Yes, Taylor Swift deservedly makes headlines now. I hope Apple uses its advantages over Pandora and Spotify and others to nurture young performing talents. Beyond things like TV show The Voice, e.g. either giving exposure in community spaces in newer stores, or less obviously at city parks. Unknown artists have long memories who helps in early days.
    I've long thought Apple should cut out the labels by subsidizing studio time and other music production costs (back up musicians, etc) for promising young artists, in exchange for some period of exclusivity on Apple Music.  Apple could highlight these upcoming artists within its Apple Music service, providing a spotlight on them and enhancing discovery.  This would be a service to both the artists and to Apple's Music customers.  After the period of exclusivity the artists could be cut loose but supported with the tools needed to remain independent (contract boilerplate, etc) further cutting out the traditional labels to ensure these new artists never become, as Jameskatt2 (no relation) describes, 'employees of the labels' and thereby continue to receive the lion's share of income from their work product. 
    In other words, Apple should become a music label, because that's what they will be doing.

    what most people refuse to acknowledge is that music labels should be getting most of the pie, because they spend all the money, and take all the risks. Most artists lose money, and the label is on the hook for that. That's why certain people in the industry have gained such names for themselves, because they can recognize, better than others, which acts will be successful or not. It's very difficult.

    and I'd like to mention that this is true for the publishing industry, the Tv industry and the movie industry.
  • Reply 20 of 20
    melgrossmelgross Posts: 30,368member
    So Apple just wants to copy Spotify now? why does an apple just cut out the middleman and offered to pay artists directly?
    Paying artists is the least amount of money in the equation. Unless an artist wants to record in her living room, basement or garage, there are vast sums of money involved in recording in a proper studio, marketing the act, and doing all of the things required. And then, unless Apple is just going to pay major, established acts, what happens to new artist development? That's one area in which the labels are vital. You can't hope that once a year, someone will do their thing on You Tube, and it will become a hit.
    edited June 2017
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