Now Apple wants to reduce royalty rate it pays record labels

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Last year, MBW broke the news that Spotify was trying to negotiate the royalty rate it paid record labels down from 55% of revenue closer towards 50%.

After two years of negotiations, the streaming platform finally reached a new long-term licensing deal with Universal Music Group in April.

Universal agreed to a smaller revenue share – believed to be around 52% – but Spotify in turn agreed to be pegged to subscriber growth targets, as well as offering other benefits.

To put that into context, 1% of Spotify’s revenue last year equated to approximately €29m ($33m) – so an industry-wide dip from a 55% to a 52% rev share would prospectively save Spotify somewhere near $100m annually.

Now Apple is believed to be on a similar mission.

According to a report from Bloomberg, the Cupertino giant’s long-term licensing deals with the labels for both Apple Music and iTunes are due to expire at the end of this month.

As part of the re-negotiations, Apple is apparently asking to bring its label revenue share rate down from 58% closer towards Spotify’s equivalent.

Bloomberg’s sources suggest that, like with the Spotify deals, labels are broadly open to the discussion with Apple – so long as the company commits to agreed subscriber growth targets, as well as continued promotion of iTunes in key download markets.

Both Warner and Sony are yet to sign new long-term licensing agreements with Spotify, but MBW’s sources suggest that hopes are high that a deal with at least one of the pair will be struck by the end of July.

Spotify announced last week that it now attracts over 140m monthly active users, around 53m of which are believed to be paying subscribers.

Apple announced earlier this month that it now has more than 27m subscribers on its platform.

Music Business Worldwide

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  • Morton Wilson

    Well, FWIW, as a small indie label in HK (but also a guy who has spent the last 40+ years working in recording studios with composers and artistes) – does anything we might say here really matter? Streaming is where it’s at – Spotify nailed the model and Apple scrambled to catch up. Spotify wants to go public but is running at a loss (not much of a businessman but something here does not equate) and Apple (who have deep pockets and reasonably long arms) have hit the point where streaming income has eclipsed downloads. Okay dokey. BUT – as this odd couple continue to redefine how people ‘get’ their music (subscription) and the deals they need to put in place with the majors (and indies or reputable indie ‘aggregate’ distributors) I can’t help but think that something is getting lost in the equation – this non-stop grab for market share and profit. Let’s face it – the labels were never and artiste’s best friend – ok, got it. But now the two platforms who are essentially positioning themselves to replace ‘radio’ (as we once knew it) and pretty much everything else, are looking at A CHEAPER RATE for the stuff that fuels their engine(s). And who takes the hit? The composers, the songwriters, the artistes. I’m no luddite but there is something fundamentally wrong with this new Spotify / Apple streaming model that is leaving the people who actually MAKE THE STUFF behind. I have no immediate solution – I get that we are in a transitional time – but this doesn’t smell good to me. Thoughts? 🙂

    • Patrick Gomersall

      Sadly this is no great surprise, the major record labels will always look to maximise revenue at the expense of the artist/creator with any new form of media. I don’t blame Spotify or Apple for looking to renegotiate, and as the record companies are still scrambling to make up for dropping the ball on downloads/streaming, and given their limited options on credible alternatives, they have little choice but to suck it up and pass on the loss to little guy or gal. Multiple revenue sources, ownership of IP and direct contact with audience through social media seems to be the answer?

  • TONPROJEKTION

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