Last September, IT giant Apple announced their intention to enter the ever-expanding streaming market, but their music service, working title iRadio, has hit several road blocks along the way since.
Originally intended to launch with the iPhone 5 last year, Apple’s iRadio plan had to be put off after the tech giant couldn’t come to an agreement with the world’s largest music publisher, Sony/ATV, on the subject of royalty rates.
Now, Apple has hit another stumbling over royalty rates, with the New York Post reporting that there will be even further delay to the launch of their music service after their proposed royalty rates have been considered ‘way too cheap’ by record label majors.
Apple’s initial offer is just US 6 cents per 100 songs streamed; half of what Pandora, the leading music streaming service offer (12 cents per 100 songs streamed). This low rate falls way under that set by the Copyright Royalty Board, which is 21 cents per 100 songs streamed.
Given that Apple is reportedly the head of a media empire worth approximately $137 billion, the proposed rate looks hypocritical, and those within the music industry say it’s only fair that they should pay more to their musicians. Subscription-based streaming service Spotify is the current leader in royalty rates, paying their artists 35 cents per 100 streams.Apple’s initial offer is just US 6 cents per 100 songs streamed; half of what Pandora, the leading music streaming service offer
Licensing negotiations have been slow between Apple and the record companies, and while its not had dramas in the past securing licenses with major performing rights organisations like Ascap and BMI, as the New York Times points out, the bodies have become more stoic following Sony/ATV publishing – who contributed to the breakdown of negotiations over the iPhone 5 – recently pulling out from relevant digital rights groups, forcing digital services to negotiate directly with royalty bodies.
Apple’s proposed music stream follows the model of internet radio service Pandora, and woud use a similar ad-supported model, making use of Apple’s own iAds advertising platform for revenue.
Why copy Pandora and not the likes of Spotify? Because as has Apple has seen with the success of its iTunes store – which recently hit 25 billion global sales – 50% of the digital music shop’s revenue comes from mobile devices.
Additionally, a recent report from stats-tracker NPD Group reveals that more than half of smartphone and tablet users (such as iPhones and iPads) are using their devices to listen to music. With 65% of smartphone users listening to internet radio, which dwarves those that listen to on-demand music services like Spotify and Deezer, which accounts for 39% of listeners’s mobile music habits.
Pandora has become the global leader in the mobile market, with over 175 million registered users in the US, with more than 75% of their users doing their listening through Pandora’s smartphone and tablet apps.
Those combined figures certainly illuminate how Apple is looking at a significant slice of the market (and a major cash cow) should it get its iRadio service off the ground, but Apple’s spiritual model – Pandora – has equally run into issues concerning its royalty rates.
Musicians and songwriters lashed out against Pandora last year after they filed a lawsuit against ASCAP (the American Society of Composers, Authors and Publishers) in a bid to lower the royalties it pays artists to use their music. David Israelite, president and CEO of the American music publishing trade association NMPA, condemned Pandora’s actions, stating “To file this suit at the same time that Pandora’s founders are pocketing millions for themselves adds insult to injury.”Apple may have to swallow humble pie and renegotiate its stingy royalty rates sooner rather than later, not just as a point of pride – but necessity.
This lawsuit was met with an open letter to Pandora from industry legends such as Robert Plant, The Doors and Billy Joel, titled “A Musician’s Perspective on Pandora”, claiming that the proposed act would cut royalties by as much as 85%.
Apple may have to swallow humble pie and renegotiate its stingy royalty rates sooner rather than later, not just as a point of pride – but necessity.
With streaming services likes Spotify and Deezer continuing to encroach on iTunes digital sales market, and established services like Pandora already in place, Apple needs to move quickly if it hopes to compete. Especially given all the young blood and new players entering the market.
There’s the recently launched Songl, a partnership between Aussie network giant Southern Cross Austereo and label majors Sony and Universal, while social media giant Twitter has reportedly bought up Aussie music aggregate We Are Hunted and looking to launch its own music service before the month is out.
Google have also teased plans to announce their own music streaming service, but have drawn criticism from record labels and musicians alike after the revamp of their search engine formula and algorithms last year failed to live up to its promise of discouraging users from visiting illegal music websites.
Meanwhile, ‘Daisy’ the music streaming service from Beats Electronics and Nine Inch Nails/How To Destroy Angels frontman Trent Reznor, recently received $60 million in funding from investors – including Aussie media mogul James Packer – interested in seeing the on-demand subscription service bring its ambitious ideas to frutition.
Namely, looking to do for the streaming service boom what the iPod did for the mp3 last generation, revolutionising the industry with a new business model that proverbially wraps Amazon, Ticketek, and iTunes all into a one-stop digital location focused on musical exploration, with artists like Reznor as the navigator.