Apple Music will pay more to music biz than Spotify… eventually

Some good news amongst the fury regarding Apple Music‘s refusal (so far) to pay indie labels for its upcoming three-month trial: the service has revealed what the music biz will receive when its subscribers finally cough up… and it’s slightly more generous than Spotify.

Daniel Ek‘s Swedish streaming service has long matched iTunes revenue splits by guaranteeing that 70% of its post-tax income will be paid to labels (and artists) plus publishers (and songwriters).

As previously explained on MBW, this 70% roughly equates to around €5.83 per full-price Spotify subscription in Europe.

Around 1/5th of this figure – or 12% of total pre-tax revenue – makes its way to publishers/songwriters, with the rest being handed to owners of recorded music rights.

Now in an interview with Re/Code, Apple has confirmed that it will pay 71.5% of all Apple Music revenues to music rights-holders.

Outside the US, claims Apple’s Robert Kondrk, that number will vary – but on average it will stand at around 73%.

“Apple says that it will pay 71.5% of all apple music revenues to music rights-holders. Outside the US, it rises to 73%.”

The leaked Apple Music contract which appeared on Digital Music News last week showed that labels would receive 58% of post-tax revenue from Apple – which indicates that anywhere between 13.5%. and 15% will end up in the pocket of publishers/songwriters.

Of course, to get its hands on this cash, the music business will have to be patient.

Independent music companies are up in arms over Apple’s decision not to compensate them with any royalties for the three-month free trial of Apple Music, which launches in 100 countries on June 30.

One independent music insider told MBW: “Not being paid by Apple Music for three months is bad enough; it’s going to really hurt cash flow for independent labels and punch a black hole into music industry income this year.”

Another source commented: “No indie worth their salt will sign this.”

Industry experts estimate that the worth of the three-month free window to Apple in Customer Acquisition Costs (CAC) is US $4.4bn.

As pointed out by Jimmy Iovine at the WWDC conference last week, there are nearly a billion iOS device users around the world*.

The company confirmed a billion iOS devices had been sold (which includes users buying multiple devices) in January.

“If apple can convert 13% of iOS users into paying apple music customers, it would equate to $15.6bn a year – more than the annual income of the current recorded music industry.”

On a happy note, if Apple could convert 10% of a billion Apple Music users to its standard $9.99-per-month subscription tariff, it would hit its target of 100m paying users.

In turn, if those 100m paying users each shelled out the standard individual tariff, it would mean $999m per month in income, or just under $12bn a year.

On an even more optimistic note…

If Apple could convert 13% of our posited billion iOS users into paying Apple Music customers, that equates to $1.3bn a month – or $15.6bn a year… more than the entire annual recorded music industry’s revenue as we stand.

That calculation is made extra-optimistic by Apple’s surprisingly generous family package, which allows up to six people to enjoy Apple Music’s premium tier for a total of just $15 per month.

UPDATE: Some scepticism has emerged around the ‘billion iOS device users’ already this morning. Here’s why it exists as an estimate:

i) Back in January, Apple confirmed a billion iOS devices had been sold. That obviously doesn’t equate directly to unique users, but gives us a useful starting point

ii) Here’s what Jimmy Iovine actually said at WWDC: “Thats Apple Music! It’s all the ways you love music, all in one place, and that place [iOS] is almost in a billion hands around the world already.’

ii) There are now officially more connected (active) mobile devices in the world than people, at over 7 billion.

iii) Apple’s main rival, Google, announced that there were more than a billion active Android users in the world 12 months ago. Since then, Apple has launched two iPhones, two iPads and a Watch.

iv) Apple announced over a year ago that it had 800m registered iTunes accounts. This number had grown by 200m over the previous 12 months.Music Business Worldwide

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