Apple Music is launching in a week, amid a great deal of controversy. Taylor Swift made a lot of noise, saying that she wasn’t going to allow her latest album to be streamed on Apple Music during the three-month free trial period, nudging Apple to change their policy. However, Ms Swift seemed quite happy to allow her other albums to be streamed.
It’s important to highlight the fact that record labels don’t have to opt in to Apple Music for all their music. They can choose whether or not a given album, or track, is streamable.
As you can see above, there is a checkbox to clear an album for sale, and another to clear it for Apple Music. (Drilling down in the iTunes Connect interface, labels can also choose which territories this applies to.) There is also a Cleared for Apple Music date, so a label could release an album for sale on the iTunes Store, and allow it to be streamed, say, three months later.
This latter feature is probably what we’ll see for major releases, and this gives Apple a big advantage over other streaming services. Since Apple sells and streams, labels will be able to manage both with a windowing strategy (allowing different uses at different times).
My guess is that labels who are allowing their music to be streamed will take advantage of this Apple Music Start Date to ensure sales in the first months after an album is released. But this highlights the fact that Apple Music users may not be able to stream new releases; it will depend on each label, and each album.
Over the weekend, pop singer Taylor Swift signed an open letter to Apple (presumably written by “her people”), which discussed the fact that Apple wasn’t planning to pay rightsholders during the three-month free trials that Apple Music was offering. In it, she explained why she was withholding one of her albums from Apple Music, but, curiously, not the rest of her music.
I was planning to write an article about this today, but, when I woke up, I saw that Apple had changed its mind, and had announced, via Eddy Cue’s Twitter account, that the company would, indeed, pay for streams during the free trial period.
Apple, like most other people in this discussion, are a bit confused about their terminology; they don’t pay “artist[s],” they pay rightsholders. They make two payments: one for publishing, and one for performances. Clearinghouses for publishing rights then divvy up their share to songwriters, and record labels let some of their income trickle down to the actual artists. (Except, of course, with the smallest indie bands who actually contract directly with Apple, or any other streaming music service. Most indies go through aggregators, who distribute their music on streaming and download services, and who collect the income and pay it to individual labels.)
The person who wrote Ms. Swift’s open letter got it wrong too. Her text says:
I’m sure you are aware that Apple Music will be offering a free 3 month trial to anyone who signs up for the service. I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months.
Apple doesn’t pay artists or producers. Ms Swift says nothing about record labels, who, other than for the publishing payment, are the ones who collect the money. This distinction is very important when discussing streaming music. All the streaming services try and claim that they pay “artists,” but they absolutely do not.
When an artist gets paid, it’s by their record label. Standard contracts give a recording artist somewhere around 10% of the record label’s income, after expenses, including a producer’s royalty, for their recordings. Streams are already paid very little, and the artists get a fraction of that. Somehow, the record labels get a pass in this discussion, as if the paltry amounts that artists get are the fault of the streaming services, not their vampiric contracts.
Apple caved not because of Taylor Swift, but because her open letter was the highest profile statement among the many who complained about this issue.
But let’s take a step back and look at the free trial, and what it means. Every streaming service gives a one-month free trial, and doesn’t pay record labels or songwriters. Apple is extending this to three months in the hopes of getting more people to embrace music streaming than have ever done so. Apple is also paying about 1.5% to 3% more in overall royalties than other streaming services. And some people have made back-of-the-envelope calculations, saying that at that rate, it would take some eight years to make up for the three months. But it’s not that simple. (But it’s good enough that all the major labels signed on to that rate.)
Note that Apple won’t be paying the full per-stream rate during the trial period. Peter Kafka of re/code spoke to Eddy Cue and says the following:
Cue says Apple will pay rights holders for the entire three months of the trial period. It can’t be at the same rate that Apple is paying them after free users become subscribers, since Apple is paying out a percentage of revenues once subscribers start paying. Instead, he says, Apple will pay rights holders on a per-stream basis, which he won’t disclose.
I think Apple’s goal was two-fold:
First, they want to get as many people on the music streaming wagon as possible. Spotify, the biggest of the a la carte streaming services, has 20 million paid subscribers; Apple is aiming for 100 million. In one fell swoop, Apple hopes to increase the amount of money being spent on streaming, and being paid out to rights holders, by a factor of five. (I’m not counting radio-style streaming like Pandora, or the smaller services, who have a few million subscribers.)
Apple is trying to sell the idea of music streaming, which, if successful, will have a knock-on effect across the board. If music streaming becomes mainstream, then musicians and record labels will benefit more than they can imagine. (And users will pay the music industry a stipend for what may be their lifetime.) If they are successful, that 1.5% to 3% will be increased by a vastly larger number of subscribers, and, presumably, streams.
Consider this number: if Apple does get 100 million users, at $10 a month (I’ll leave out the family plan in the interest of a simple calculation), that’s $1 billion a month, of which more than 70% goes to record labels, songwriters, and artists. That’s about $8 billion a year more than what is currently spent on streaming. According to the IFPI, the total value of the recording industry in 2014 was $15 billion. No wonder the major labels have kept quiet about these free trials… (Yes, streaming will lead to fewer downloads; it’s not clear how much one will compensate the other.)
Second, and this is a much bigger issue, it’s unclear if Apple can actually pay the rights during this trial period and not get targeted by competitors for predatory pricing or anti-competitive behavior. A company who has a big cash hoard can’t price something so low that others can’t match it, in order to unfairly compete with them. In some countries, it’s illegal to sell anything at a loss, and Apple will be clearly doing that during these free trials. Imagine a small streaming service, such as Tidal, which now has to compete with a free service for three months; they can claim that they’re losing money because of Apple’s cash hoard. (And they may be right.)
I strongly agree that it’s unfair for Apple to expect record labels, musicians, and songwriters to not be paid for their streams for two months (not three; all the streaming services offer one-month unpaid trials). But the solution, with Apple paying for these streams, may end up being a Trojan horse that can lead to regulatory authorities investigating Apple’s plans. One of the biggest problems around these free trials is that, while Apple negotiated with major labels, they simply imposed their conditions on smaller labels and independents. The company cannot negotiate with everyone, and their contract comes across as aggressive to smaller labels.
In the end, I think that Apple did the right thing. They didn’t cave because of Taylor Swift; the reaction was too quick. My bet is that Apple has been discussing this internally since there has been so much negative press about the issue. And Taylor Swift got a boatload of free publicity.
I’m waiting to see what Spotify has to say, whether they’ll claim that Apple is being anti-competitive. And that Mr. Z from Tidal, who has been claiming that there is a conspiracy against his service… Apple is treading a fine line here, one that may lead to more problems than just angry musicians.
Apple claims to have 37 million “songs” in the iTunes Store, and they say that, with Apple Music, you’ll be able to “get access to the full Apple Music library” with a membership (a paid subscription).
However, you won’t be able to stream everything on the iTunes Store. While a number of high profile artists, including one Taylor Swift, are refusing to allow their music to be streamed, a number of indie labels are also not signing on to the service. There have also been suggestions that The Beatles will not allow their music to be streamed.
Many record labels, who don’t believe in licensing their music for streaming, are finding that there seems to be a de facto clause in Apple’s new terms and conditions for the iTunes Store that allows Apple to stream their music. If labels don’t sign the revised terms and conditions that they have been offered, it seems that their music won’t be streamed, but these terms and conditions cover both sales and streaming from the iTunes Store. Record labels are worried that by not signing these terms and conditions, Apple may not sell their music any more.
Add to this the fact that Apple’s three-month trial is being financed by record labels: your three month free trial means that the record labels get no money for the music you stream. It’s not as bad as the exaggerated statements of some labels, saying that they would be “totally screwed,” and record labels will not go out of business because of not getting additional income from streaming for three months. (It’s unlikely that every paid user of other streaming services will cancel their current subscriptions during that period.) But given that this three-month free trial is marketing for Apple, and that it will definitely impact iTunes Store sales, record labels feel that Apple should pay them for the opportunity to use their music for this purpose.
One musician went postal over what he says were claims, by Apple, that his music would be removed from the iTunes Store if he didn’t opt in to the free trial. But Apple has refuted this, saying that “artists are free to choose whether or not to be part of the subscription service (including the “three-month trial”) without any repercussions.”
I strongly agree that no one should give their work away for free. Apple should compensate these artists, because their music is what is going to make or break Apple Music. To be fair, Apple will be paying a higher rate of royalties to record labels than Spotify, but not by much. Expecting musicians to foot the bill for this free trial is unfair. On the other hand, if, after three months, Apple Music has, say, 50 million subscribers, then all the labels whose music is on Apple Music will benefit. But Apple’s not selling it this way; they’re just imposing their conditions.
There will be record labels who don’t want their music streamed. There are a number of independent classical labels who don’t play the streaming game. For example, Hyperion has never licensed its recordings for streaming. In jazz, the venerable ECM won’t be present either. (Unless, of course, they’ve changed their tune; they used to be on Spotify, and pulled their music a couple of years ago.) As to specific artists, such as Taylor Swift or The Beatles, I’m not sure how that works. If their label is small enough, as is the case with The Beatles they can opt out for all their music, but can artists opt it of their with a larger label that has allowed streaming?
It should be noted that there are many artists who don’t stream on Spotify or other services, and this hasn’t made the news (with the exception of Ms. Swift, who used to allow her music to be streamed, and recently pulled it). It’s only the fact that it’s Apple that makes everyone pay attention. But, in a way, it’s right that people notice. Apple Music could be very big, and early agreements will influence the way the service works, and its success.
Update: 1,300 German companies – labels, publishers, distributors, etc. – have signed an open letter to Apple saying, notably:
Independents shouldn’t be the ones paying for your customer acquisition and the risk of the launch of your service.
As I said above, Apple should bear the costs of marketing this service.
June 30 is also the date that Apple Music goes live. I don’t expect Apple to add any features to Garage Band that take advantage of Apple Music – they don’t want you to record music from Apple Music’s radio stations, for example – but this date suggests that, in addition to Apple Music, Apple plans to make other changes to its music software.
There will certainly be a new version of iTunes, but it will most likely be a 12.2 update, not iTunes 13. iTunes 12 has only been out since last fall, and Apple doesn’t issue major updates to iTunes that often. Also, many people haven’t gotten used to the changes in the iTunes interface that version 12 bought.
So what will Garage Band bring on June 30? My bet is it’ll include some way of uploading content to Connect, which is part of Apple Music. One thing about Connect seems to be the ability for any artist to sign up, and, while you’ll probably be able to upload files through a web interface, allowing Garage Band users to upload their songs directly would be a nice touch.
It just goes to show, digital music codecs are confusing. You can’t blame them for just looking at the numbers. But a bit of research would show that this is simply wrong.
Apple Music will stream music in AAC format at 256 kbps. CNN compared this to other services, such as Beats Music, which stream MP3 files at 320 kbps.
What they don’t consider, however, is that AAC – also known as MP4 – is a much better codec. It won’t sound worse at that lower bit rate; it will sound just as good, if not better, than 320 kbps MP3 files. And, it saves you money on bandwidth.
While they point out that Spotify only uses 320 kbps for paid subscribers (others get 96 or 160 kbps), they still manage to say that Apple Music will sound worse. And they don’t point out that Spotify uses Ogg Vorbis files, which are much lower quality than either MP3 or AAC.
Frankly, I think Apple Music should have an option to stream 128 kbps AAC files, when you’re using it on mobile devices. You don’t need the difference in audio quality between 128 and 256 kbps unless you’re listening in a quiet environment, at home, or on really good headphones.
Spotify’s head Daniel Ek notably tweeted “Uh ok,” after Apple announced its Apple Music service. Today, Reuters is reporting that Ek has already admitted defeat. He is quoted as saying:
“To me it is enough to be among the top three… But right now we have an advantage of being the number one in music.”
Geez, he shouldn’t give up this fast. Though you have to admit, Apple is the juggernaut coming in and shaking things up. I’m not convinced that Apple will “win” this market though, if winning means anything. It’s possible that Apple will get people to pay for streaming who never paid for it before, and that Spotify will keep many of their 20 million paid subscribers. In other words, Apple’s service could be what tips the balance toward streaming as a viable alternative for everyone.
However, it will be much harder to differentiate music streaming services in the future. It’s not a handful of exclusives that will make people switch from one streaming service to another. Once you’re locked into that service – when it’s got your listening history, your playlists, and your friends – it’s less likely that you’ll change. The difference won’t be one of price, as Apple has aligned their pricing with Spotify and others. It will be one of convenience, of user interface, of usability. And Spotify is not the leader there.
Digital Music News, known for its not-quite-precise reporting about the digital music industry, ran a nice clickbait article yesterday, Apple Is Paying Just 58% of Streaming Royalties Back to Indie Artists . This article was picked up later by a number of Apple-related and tech websites. But Digital Music News was wrong; and now they admit it, sort of.
It all begins with a contract they got a hold of. This contract stated that, per $10 account, Apple would be paying out $5.80 to record labels. But, as several commenters pointed out, this does not take into account publishing royalties, paid to composers and songwriters, which are paid separately from performance rights. These publishing royalties, which come to around 12%, added to that 58%, equal – oh, what a surprise!!! – 70%, the industry standard rate for payouts to musicians and composers combined.
Digital Music News did publish a correction, after the first paragraph of the article:
Apple announced Apple Music yesterday. This new service combines a music streaming service with discovery features, curated playlists, and radio, and also includes a sort-of-social network for music. (Remember Ping?) Apple’s presentation of Apple Music was very confused and confusing, and was marred by uninspired presenters, suggesting that the company really hadn’t spent much time planning the presentation.
As of today, all we know about Apple Music is what’s on the surface. Here’s what Apple Music offers:
Apple Music will be a music streaming service, like Spotify, Deezer, or even Tidal (without the lossless option that latter service offers). Presumably, Apple Music will stream at 256 kbps, but Apple has not said anything about quality. Apple claims that you can listen to “the tens of millions of tracks in the Apple Music library.” I note that they did not say “all the music available on the iTunes Store,” which suggests that labels may be allowed to opt out.
But Apple says:
This suggests that Apple Music will work as I suggested in this article. I suggested that Apple would integrate streaming tracks into your library, allowing you to make playlists with tracks you own and tracks you rent. This seems to fit with what Apple says on their website:
Wherever your music comes from — purchased in the iTunes Store, ripped from a rare import CD, or downloaded from your favorite music blog — everything you’ve collected lives in one place. And alongside it is the ever-expanding Apple Music library. It’s like having just about every song ever recorded at your fingertips.
As an Apple Music member you can add anything from the Apple Music library — a song, an album, or a video — to your collection. And that’s just the warm-up act. From there you can create the perfect playlist from anything you’ve added. You can save it for offline listening and take it on the road.
Apple Music will be available through iOS devices, Macs or PCs using iTunes, the Apple Watch, and even Android, with an app for that platform available in the fall. And Apple Music is clearly designed for those users who already have an iTunes library. If you’re a Spotify user, and only listen to music through that service, there’s little incentive to switch. But if you do have music in your iTunes library, then Apple Music, by allowing you to combine your existing library and streamed tracks, makes it much easier to use what you already own.