Apple to pay lower streaming rates to Warner Music as the two companies reach new deal

Apple has reached a new deal with Warner Music Group that will allow the company to lower the rate it pays the music giant for proceeds from its catalogue of songs, reports Bloomberg on Thursday. This new deal marks a first for Apple who is trying to renegotiate with music labels as Apple Music becomes more popular, and a growing source of revenue for the music industry. 

Under this new deal, Apple will be paying Warner Music a 55% cut of streaming proceeds from its catalogue, down from 58% in the previous deal. Spotify, the streaming music industry leader, had reached a similar deal earlier this year, lowering rate to 52%, although this rate cut will only kick in if the company can reach specific new subscribers target goals.

Subscriber growth is actually an essential leverage tool for Apple and other competitors. The bigger the subscriber base, the more leverage companies get in negotiating with labels. The relative success of Apple Music since its launch two years ago is allowing Apple to renegotiate in its favor some of its agreements with music giants.

If music labels are so eager to cut deals with streaming services, it’s mainly because this rather new way of listening to music has revived the industry. According to The International Federation of the Phonographic Industry, music sales grew 5.9% to $15.7 billion in 2016, a stark contrast to the overall decline the industry had known for the past years. Goldman Sachs is projecting the streaming industry will grow to $41 billion by 2030.

While this is a big financial win for Apple, there is still more to be done. Bloomberg reports that Apple could be inking a similar deal with Sony Music Entertainment, owner of the second largest record label, in the very near future. However, another deal with industry leader Universal Music Group seems off the table at this time.