Business News Digital Labels & Publishers Top Stories

AIM won’t endorse Apple Music deal that has “serious short-term consequences” for labels

By | Published on Wednesday 17 June 2015

Apple Music

After American independent label trade body A2IM said it was “struggling to understand why rights holders would authorise their content” for the new Apple Music streaming service based on the deal currently being offered by the tech giant, the UK’s Association Of Independent Music now says Apple’s proposal “does not meet a standard of commercial fairness that we can endorse”.

As previously reported, since Apple unveiled its all new music platform, due to go live on 30 Jun, there has been much debate about the deal it is offering the record labels. A major sticking point is that the tech giant doesn’t want to pay any royalties at all while users are on a three month free trial. Apple argues that the labels have as much to gain as it does from users trying out the streaming service and then signing up at $10 a month.

Unlike Spotify, Apple Music will not offer a full ongoing freemium option. Spotify pays much lower royalties on freemium streams and Apple argues that, by having only premium users beyond the trial periods, it will pay in more to the industry overall. The firm’s Robert Kondrk has added that Apple Music will also pay 2-3% more of its revenues to the music industry anyway, meaning even more cash for labels, publishers, artists and songwriters. Long term.

Which may or may not be true, it mainly depends on whether Apple can actually persuade more casual music fans to sign up at $10 a month. But either way, in the short term subsidising the three month free trial could be costly for the labels, if it results in a sharp fall in either downloads or Spotify streams, especially in July, August and September when all Apple Music users will be on the free option.

Unlike the streaming start-ups, Apple isn’t negotiating with Merlin to secure one central licence that covers 20,000+ independent labels and distributors, because the indies’ original iTunes deals pre-date the creation of the Merlin organisation. This means Apple is dealing with the labels individually, which arguably reduces their negotiating power on sticking points like this.

Which is why A2IM and now AIM have issued guidance to their members, while acknowledging that every label must do what it thinks is best. The boss of the latter, Alison Wenham, who has experience in leading indie label crusades against Apple dating back to the very early days of iTunes, says she feels uneasy about the Apple Music deal negotiations.

In a letter to her members she notes the huge potential Apple’s new music service offers the record industry as a new significant revenue stream, but adds: “The speed at which Apple has introduced their plans and its lack of consultation with the independent music sector over deal terms (despite what [Apple Music overseer] Jimmy Iovine might claim) has left us with the uneasy feeling that independents are being railroaded into an agreement that could have serious short-term consequences for our members’ interests”.

On the royalty free trial period, Wenham adds: “This is a major problem for any label that relies on new releases rather than deep catalogue as the potential for this free trial to cannabalise not only download sales, which remain a very important revenue stream, but also streaming income from other services, is enormous. As a whole the independent sector is a powerful voice in the music industry but its individual parts, the smaller labels particularly, cannot withstand such a potentially catastrophic drop in revenue”.

She concludes: “Each individual member of AIM must, of course, make their own decision whether or not to sign this agreement, but many members have already expressed very real concerns about the consequences of doing so, hence our communication to the whole membership. It is AIM’s view therefore that, in its present form, this agreement sadly does not meet a standard of commercial fairness that we can endorse”.

Whether Apple is willing to budge on this remains to seen. We know this was a sticking point with the majors too, but don’t know how the matter was resolved. Given the tech giant is clearly keen to reduce its liabilities, a lump sum deal would be the easiest solution, though that won’t be so easy to organise when dealing with every indie label separately.

Unlike with last year’s indie label stand off with YouTube, the independents do arguably have an alternative if Apple won’t budge, in that they could hold off licensing the streaming service until October, when at least some Apple Music users will be on premium. Though that could still have a negative impact on other income, in that users on the Apple Music free trial might just make do with the major label content that is there, and therefore still download or Spotify-stream less indie label repertoire.

Read Wenham’s full letter here.