The three major labels secured an equity share in Beats Music as part of their licensing agreements with the service. But according to multiple sources close to those negotiations and Beats’ subsequent sale, artists on those labels will receiving nothing at all from the roughly $3 billion acquisition by Apple.
The reason is that acquisition earnings aren’t tied to actual sales or streams, and therefore are not accounted at all to label artists. “They will get nothing,” one industry attorney flatly told Digital Music News, while insisting on anonymity.
“There’s nothing in the [artist] contracts that says the label has to share those earnings. They draft it like that so the artists get nothing.”
May 28th: “Apple: ‘We’re Buying Beats for $3 Billion‘”
In order for a service like Beats Music to license major artists, they first have to trudge through negotiations with the three major labels: Universal Music Group, Warner Music Group, and Sony Music Entertainment. They then pursue deals with smaller independents, publishers, and other rights owners before launching.
The licensing agreements typically involve large upfront payments, equity shares, per-play payments, or all three. In the case of Beats Music, launched this year, a pair of sources involved in the negotiations noted that the emphasis was on percentage shares, not upfront payments. In all, labels received a collective 5%, which translates into about $200 million from the Apple sale.
Incidentally, the sources noted that this pales in comparison to a roughly 20 percent share in Spotify, though longtime Interscope and Universal Music Group executive Jimmy Iovine may have negotiated the softer deal. Indeed, Iovine was instrumental in negotiating licenses between the major labels and Apple’s iTunes Music Store back in the early 2000s, and remains a de-facto representative for the majors. Spotify, on the other hand, lacked this advantage and waited far longer to secure its deals.
Meanwhile, one source has agreed to leak a portion of a major label artist contract — involving one of the largest artists in the world — to prove that not only are acquisition earnings like these excluded from artist payouts, but so are all other royalties from streaming services.
In other words, major label artists are effectively screwing themselves out of all streaming revenues – acquisition-related or otherwise – when they sign on the dotted line.
More details ahead. We now bring you back to your regularly-scheduled coverage on Billboard.
Written while listening to Zebra Katz.