Monday, March 11, 2013

The Reasoning Behind Apple's Low Streaming Rate

Pandora icon image from Bobby Owsinski's Music 3.0 blog
News seeped out last week about Apple pushing for a low-ball royalty deal with the record labels for their upcoming iRadio (or whatever they're going to call it) streaming service, probably from the labels themselves. The leak was made to make Apple look like the bad guy in the negotiations, and maybe it is, but you won't see the whole story in any of the news reports.

To recap, Apple is looking to pay half of what Pandora now pays, which is 12 cents per 100 songs streamed. That's still lower than what a typical radio station pays for their online service, which is 22 cents per 100. And then you have Spotify, paying what seems to be a whopping 35 cents per 100.

So why should Apple get away with paying so little in comparison to the potential competition?

The fact of the matter is that streaming experts all agree that Pandora's and Spotify's business models are broken, and neither company will survive if they have to continue paying the current rates. In fact, Pandora itself has said as much as it pushes hard for a better royalty deal than it has now. Apple does not only want to stay away from that trap, but it also wants to set a precedent for payment. It's pretty difficult to push for a lower rate once a higher one is agreed on, as Pandora and Spotify are now seeing.

Of course, none of this helps the artist and songwriter, who are not making much even with the current rates. They'd make more if they had better streaming deals with the labels and could participate in more of the upfront fees that the services pay, but that's not going to happen any time soon.

While I can see the labels point in keeping the rate as high as possible, the fact of the matter is that a strong Apple entry is good for the entire business, even at a lower rate. While free streaming with ads doesn't help the artist much, widespread subscription would. Any push in that direction only gets the industry to a better place faster.


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