Apple has pitched record labels a per-stream royalty of 0.06 cents per stream, or half of what pure-play webcasters like Pandora currently pay for performing sound recordings, for its upcoming Internet radio service, according to a record label source. Whether or not record labels will accept the offer is another matter.
The pitch goes something like this: Apple's Internet radio service will come with a buy button that allows the listener to purchase a song being played on the world's biggest music store, iTunes. That ability to link a purchase to the Internet radio service means labels will also benefit from consumers' future listening of purchased tracks on iTunes Match, Apple's cloud-based music locker that streams music to various devices. Labels and publishers receive a share of the $25 annual fee.
But the royalty rate Apple has offered isn't striking a chord with labels. "Whether or not the labels are buying it is another story," says one label executive of Apple's pitch, which was first reported by the New York Post. Another major label executive said the label would not go below the 0.12 cents per stream statutory rate currently paid by pure-play webcasters such as Pandora.
Apple's offer brings to light the political difficulties of accepting a per-stream royalty below the pure-play statutory rate of 0.12 cents per stream. Negotiating a rate below what is set by the Copyright Royalty Board for webcasters would set a market precedent that could have ramifications in future rate-setting negotiations. Labels could effectively undercut their attempts to uphold or raise rates -- the current set of rates expire at the end of 2014 -- in the future. There would be a long-term impact, too, because future CRB decisions would likely be based on previous years' rates. A decrease in statutory rates in 2015 would have a ripple effect for many years into the future.
The statutory rate is a political hot topic. Labels and artists support it and webcasters and aspiring webcasters want to pay less. Pandora, Clear Channel, radio companies and trade associations have thrown their support behind legislation that would change the standard by which the CRB sets the statutory rates for webcasters. The general assumption is that the different standard would lead to a lower statutory rate. The polarizing Internet Radio Fairness Act of 2012 resulted in a House subcommittee hearing on webcasting royalties in November but expired at the end of the last Congress. Sources tell Billboard they expect another version of the bill, with a different title and possibly with different language, to be introduced again this year.
As for Apple's upcoming Internet radio service, sources tell Billboard labels have seen only presentations that tell of the service's features but have yet to actually see a demo of the service. Best estimates for a launch date are currently set for late summer.
Ed Christman contributed to this article.