Just days before Apple plans to reveal a music streaming service, the company is still negotiating with record labels over terms.
The labels are pushing to get a larger chunk of revenue than they receive under their current deals with Spotify, a competing streaming service, people familiar with the negotiations said. Both sides want to complete a deal before Apple’s June 8 annual event in San Francisco for more than 5,000 developers, according to the people, who asked not to be named because the talks are continuing.
The rapid rise of streaming music and television has raised the stakes for media companies, as record labels and TV networks try to forge deals that ensure they share in that growth. Apple wants to remain the entertainment industry’s most important partner despite the popularity of services like Spotify, Netflix Inc. and others.
“Who is going to get the majority share of the profit from the content?” said Tamara Gaffney, principal of Adobe Digital Index, which analyzes consumers digital media consumption. “Apple has always wanted to get a lot of the share and they’re now in a negotiating situation with content manufacturers who want more of the share for themselves — it’s a really tough space.”
In talks with Apple, the music labels are seeking a benchmark for negotiations with other services, including Spotify. The labels take 55 percent of Spotify’s monthly $9.99 rate, and publishers take about 15 percent. Labels are pushing for closer to 60 percent from Apple, the people said.
Apple, Vivendi SA’s Universal Music Group, Sony Corp.’s music entertainment unit and Access Industries Holdings’ Warner Music Group declined to comment on the negotiations.
Apple also has been in talks with broadcasters ABC, CBS and Fox to be part of a Web-based service that would include about 25 channels, people have said. Those negotiations are moving slowly and Apple TV announcements aren’t expected at next week’s conference, people familiar with the plans said.
Apple, which upended the music business more than a decade ago by selling individual songs online, has helped push artists to new levels of stardom through its iTunes service and by featuring them in commercials or promotions. Though Apple remains the largest music retailer in the world, its place as an industry tastemaker is being challenged by Google’s YouTube and Spotify.
Spotify has more than 60 million users — with a quarter of them buying the $9.99-a-month ad-free subscription. Music is the most popular genre on YouTube’s video service, which attracts more than 1 billion users a month. YouTube also has a new ad- free streaming program called Music Key for $9.99. Pandora Media, the largest online radio service, finished the first quarter with 79.2 million monthly active listeners, with most using its free ad-supported service.
These streaming services have yet to offset losses from the decline in sales of downloaded music and physical records, and the labels say YouTube and Spotify need to do a better job of getting their users to pay. Yet if trends continue, revenue from streaming music is expected to exceed sales from downloads, according to MusicWatch.
The growth in time and dollars spent on streaming music was a big reason for Apple’s $3 billion acquisition of Beats Electronics last year. Beats co-founders Jimmy Iovine, former chairman of the record label Interscope Geffen A&M, and the rapper and producer Dr. Dre joined Apple to help revamp the tech company’s music business alongside other prominent musicians and DJs.
Apple’s new music app will be home to the subscription service, downloads and a revamped version of iTunes radio, the people said. It will include some exclusive, behind the scenes video. Artists often welcome videographers and photographers into the studio with them, and Apple has hired executives to help shoot and produce video from recording sessions with willing musicians.
The app will also feature artist pages — mostly seen as being promotional — that they can use to host videos, songs and other things for free. This is part of a program called Apple Connect. Apple will compensate the artists and labels for songs it gives away, as it has done with iTunes’ “Free Song of the Week” feature.
Apple’s negotiations with record labels have drawn the scrutiny of U.S. antitrust officials. The Federal Trade Commission has been looking at whether Apple is using its position as the largest seller of music downloads to put rival music services at a disadvantage, a person familiar with the FTC’s actions has said.
© 2015, Bloomberg News
