Apple hunting after lower royalties for Apple Music & iTunes content

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.

20 Comments

coolfactor 2333 comments · 20 Years

About 7 years ago

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%?

melgross 33607 comments · 20 Years

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!

coolfactor said:

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.

jameskatt2 722 comments · 16 Years

coolfactor said:

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.

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.