As the June 10 opening of the four-day Apple Worldwide Developers Conference nears, Apple has managed to broker deals with nearly all the major music companies just in time to announce its planned music streaming service at the meeting.
Sources tell Billboard that Sony/ATV Music, which includes EMI Music Publishing, has signed an agreement with Apple’s iRadio service. This news comes on the heels of an earlier report today by AllThingsD — and since confirmed by sources familiar with the negotiations — that Sony Music Entertainment’s recorded music operation has also signed an agreement with Apple.
That means that the sole holdout so far at least not announced is Universal Music Publishing Group. In the past month Universal Music Group’s record music operation and both the recorded and publishing operations of the Warner Music Group signed up to license their music to the service.
The majors publishers had looked like they were going to be the holdout because Apple initially offered to pay them a rate of 4.1% of its advertising revenue, while the publishers had been withdrawing digital rights from the U.S. performance rights organizations BMI and ASCAP because they wanted higher rates. BMG, Sony/ATV, UMPG and Warner/Chappell executives had privately said they were seeking rates of 10%-15% of iRadio’s advertising revenue. But when Apple agreed to a 10% rate, Warner/Chappell last week signed the deal and now so has Sony/ATV.
With Universal Music Group chairman and CEO Lucien Grainge on board with the planned Apple service, its likely that UMPG’s deal could be announced shortly, too.
A UMG spokesman could not be reached for comment.
While publishers will get 10% of revenue, they privately are calling this an introductory rate, meaning that after the iRadio service establishes itself, they expect that rate to increase. Likewise, they also say they expect Pandora to match the deals they are doing now with Apple.
The holdup on Sony’s recorded side appeared to be over Apple’s proposal that it not pay if listeners skip a song from iRadio’s programming. (Pandora pays on skips.)
The proposed iTunes digital offering has been described as a hybrid, Pandora-like service that will allow users to build their own listening stations informed by whatever song or artist is chosen, plus each user’s iTunes buying history and iCloud account. But in another important distinction, it will also allow labels to pitch music that can fit in with user’s choices. Finally, iRadio will come with a “buy” button, which labels hope will spur iTunes sales.
The service will be ad-supported, a new twist for Apple. In putting together direct deals with the major music companies, Apple has proposed a pay model based on whichever is greater of two revenue buckets. For the advertising bucket, iTunes has proposed a 50/50 split after 10%-20% is deducted to cover the cost of bringing in advertising. In its per-play/per-listener bucket, Apple is proposing to pay slightly higher than the $0.0012 Copyright Royalty Board-determined statutory rate that Pandora pays. Depending on who you ask, Apple will pay $0.00125 or $0.0013 as part of its per-stream rate, which will also have an undisclosed percentage of advertising revenue sprinkled on top. Some press reports, however, put the per-stream rate at $0.0016.
Apple appears to be holding out for the advantage of not paying on skips, which one source says makes the rate that Apple will pay on a per-play basis smaller than the $0.0012 cents per play that Pandora pays as determined by the Copyright Royalty Board for its PurePlay license. However an executive adds that the advance money that Apple is offering—the amount of which Billboard was unable to determine—is substantial enough to mitigate this problem, and potentially makes the rate Apple pays higher than that of Pandora.
Known as a fierce negotiator, Apple has long dictated rules to the music industry. But sources say there’s a new eagerness—and flexibility—when it comes to getting iRadio in place.
“Sometimes when you are introducing a new product, your costs might be higher than anticipated, but in the long term this service could become a great way for them to sell more iPhones and maybe sell more downloads for everyone. They have a history of building services that are friendly and intuitive, and while this ad-supported service is a new area for them, it could be a toe in the water that will lead to other big things for them.”
Another executive agrees, saying Apple needs this deal now in order to help offset the competitive threat to its iPhone posed by Google’s Android, which has claimed 52% of subscribers in the smartphone market versus Apple’s iOS, at 39.2%, between February and April, according to comScore.