Lowball royalty offers said to be causing delay in Apple’s streaming music service

By , Mar 7, 2013

Post iradio graphic

Multiple reports are out this morning, claiming that the reason we haven’t seen Apple’s streaming music service—which was expected to launch as early as Q1 of this year—yet is due to negotiation woes with record labels.

As usual, the problem stems from money. Apparently Apple is only offering the labels half of the royalty rate that they are receiving from Pandora. And the service could be delayed until the summer, or possibly longer…

Here’s The New York Post, who was first to report on the situation:

“The tech titan, the most valuable company in the world, made an initial offer to the label of about 6 cents per 100 songs streamed, sources said. That’s about half of the 12 cents per 100 songs paid by Pandora, the leading online radio service that Apple is taking aim at.

While the labels would admit Apple’s music service could tap a whole new revenue stream for them, they are loath to say yes to the offer as the industry is fighting on Capitol Hill to prevent Pandora from lowering its current rate, sources added.”

The report adds that by comparison, other radio-backed online services such as iHeartRadio pay about $0.22 cents per 100 songs streamed. And Spotify pays the highest royalty rate, a staggering $0.35 per 100 songs.

And here’s The New York Times, who corroborates the Post’s story:

“Apple’s efforts to create an Internet radio service to compete with Pandora has been delayed by licensing negotiations with music companies, according to a number of people briefed on the talks.

Apple had hoped to introduce the service early this year, but now it is not likely to reach the market until the summer, if not later, according to these people, who spoke on condition of anonymity because the talks were confidential.”

Both reports claim that Apple wants to preload an app for the music service on its mobile devices that can deliver a free stream of songs tailored to each user’s taste that will be supported through its iAds advertising platform.

Given that Apple sells 50+ million iOS devices per quarter (3 months), such a move could quickly put it in contention with some of the bigger players in the streaming music space. Pandora, for example, has 65 million users.

But it’s no surprise that Apple is having trouble negotiating licenses for the service. The record labels, for their part, feel that Apple can afford a much higher royalty rate. And Apple, of course, thinks it deserves a discount.

In fact, Beats CEO Jimmy Iovine says he spent years trying to convince Steve Jobs to get into the music subscription business, but he didn’t ever want to pay the record labels enough. “He felt they’d eventually come down.”

Ironically enough, a report surfaced earlier this week claiming that both Tim Cook and Eddy Cue met with Iovine last month to discuss his upcoming ‘Daisy Project,’ a streaming music service with an innovative discovery engine.

  • Share:
  • Follow:
  • http://twitter.com/klouud Timothy Polumbo

    If Apple comes out with a service EXACTLY like Zune, I’m in. I use Zune right now for my music needs. $8 a month for unlimited downloads to my Zune enabled device for on the go offline listening. If Apple does this with the iPhone then I’m sold. Won’t have to go back and forth between Win and OSX any more.

    • http://www.facebook.com/kenrick88 Kenrick Fernandes

      but zune is a part of xbox music and video services right ?

  • http://www.facebook.com/people/Antonio-Gzz/100001847768813 Antonio Gzz

    :O

  • http://twitter.com/brandonweidema Brandon

    for me, Apple paying less in royalties is justified considering all Apple needs to do is link the currently playing song to their store so users can buy what they’re listening to. That simple feature alone would be worth so much to record labels in terms of boosting sales. (i think so at least ;p)

  • Ernie Marin

    If the labels only realized the profits potential this has, way over Pandora or any music streaming service, but like the analyst, they only look at the now and not the later

    • http://www.idownloadblog.com Sebastien

      I agree. I think Apple represents a much bigger potential than Pandora, Spotify and others combined, just because of the enormous amount of people who own iOS devices. This being said, 300 million iOS users won’t turn into 300 million radio streamers, but the odds are definitely better. Plus having a streaming app right off the box on your iPhone would improve awareness of the service while minimizing friction (ie. no need to download an app)

  • TesticularFortitude

    This report, which probably isn’t true anyway, states that at .12¢ pandora isn’t making any money. Doesn’t that suggest that iHeartRadio at .22¢ and spotify at .35¢ per 100 songs stand to make even less?

    Conceding this makes all the more sense why Apple is offering .06¢. Yet the author states that Apple expects a discount(or feels entitled to).

    Either I’m just stupid or this article is just complete crap.

    • Melvco

      Where does it say Pandora isn’t making any money? Pandora turns a profit.

      http://www.digitalmusicnews.com/permalink/2012/121204pandora

      And the reason Apple feels like it can get royalty rates at a discount is because of the size of its user base. In just a single quarter, it has the potential to reach 50+ million users.

      • TesticularFortitude

        I read the report in its entirety… Not the bits and pieces posted here. It mentions pandora not making any ‘real’ money.

        I can understand why Apple is ‘supposedly’ offering .06¢. What I can’t understand is why it’s being portrayed like Apple is lowballing these guys.

        The music industry is overcharging the little guys(pandora, iHeartRadio, etc).

        Edit:

        “Rich Greenfield, media analyst with BTIG, told The Post, “People spend two hours a day listening to radio. Google, Apple and Amazon are fascinated by the opportunity to get into music in a bigger way. Pandora doesn’t make any real money.”

  • http://www.facebook.com/kenrick88 Kenrick Fernandes

    i already like TuneIn and TuneIn already supports linking to the Itunes stores.
    But i could support apple’s service only if they bring the support to India. Because most of this things are always available US only