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Now Apple is trying to cut the labels’ share of the digital pie too

By | Published on Thursday 22 June 2017

Apple Music

Now, you might think that Apple Music is just a pale imitation of market-leading streaming platform Spotify, and that product development strategy meetings at the tech giant’s music division mainly involve asking the all-important question: “what did Spotify do last month that we could copy?”. But then you’re famously harsh and I couldn’t possibly agree. Meanwhile, in a licensing strategy meeting at the tech giant’s music division, someone asks the all-important question: “what did Spotify do last month that we could copy?”

So, yes, as Apple Music approaches its second birthday, and its two-year licensing deals with the record companies get ready to expire, sources say that Apple execs are following the lead of Spotify bosses in trying to negotiate down the revenue share split enjoyed by the record companies. Both Universal and indie-label repping Merlin have now signed new multi-year deals with Spotify which alter their rates.

The deals the streaming platforms do with the record companies, music publishers and collecting societies are – at their heart – revenue share arrangements, though with minimum guarantees and advances thrown in for good measure.

Every label, publisher and society negotiates their own deal, though the original agreements saw the record companies get a revenue share of 55-60% and the publishers and societies that control the song rights 10-15%. In theory that left the streaming firms with approximately 30% of the income, though the aforementioned guarantees and advances meant they actually got to keep much less.

As the streaming market has started to boom, the streaming platforms – as each deal has come up for renewal – have tried to negotiate the labels’ revenue share split downwards, partly because the bigger publishers have managed to push their splits up to the higher end of the 10-15% bracket, and partly because the loss-making streaming services are desperately trying to work out a way to go into profit in the relatively near future.

Reducing the revenue share splits was one of the key sticking points that made Spotify’s most recent label negotiations so long drawn out. And some of those negotiations continue, of course. With the new deals that have been struck, the streaming firm has offered the rights owners more control over their content and access to more sophisticated data, while the better rates themselves are conditional on certain growth targets being achieved.

Sources have confirmed to Bloomberg that similar conversations are now underway between Apple and the record companies over its streaming service. Insiders say that the labels are generally open to reducing revenue share splits with Apple in line with the deals that have been done with Spotify, providing the tech giant offers similar commitments on growing its business, and presumably some other kickbacks on data and marketing.

Of course, for the time being at least, both Spotify and Apple Music continue to sign up new premium subscribers at quite a rapid pace each month, meaning that while revenue share splits may dip a little, the record industry at large should continue to see its streaming income grow. And while the labels would like as big a slice of the digital pie as possible, they are becoming so reliant on the streaming market – which is in turn so reliant on a small number of service providers – that they need to help the major platforms tweak their business models as they seek to become profitable.

Artists are generally kept in the dark about the specific terms of these deals, so don’t know exactly what revenue share their label partners have negotiated, nor what advances or minimum guarantees are involved, nor what kickbacks the record companies are getting in terms of marketing and data. Which, of course, remains a major bone of contention among the artist and management community.