Apple Given a Choice: $10 a Month, or No Streaming Service…

dougCEOfyoupayme

So, you really think Spotify will get to keep its free tier?

Here’s the latest on the negotiations between Apple and the major labels over their upcoming, paid-only streaming service, as reported by the New York Times.

“According to several music executives, who spoke on the condition of anonymity because the talks are private, Apple recently tried but failed to persuade record labels to agree to lower licensing costs that would have let Apple sell subscriptions to its streaming service for $8 a month — a discount from the $10 that has become standard for services like Spotify, Rhapsody and Rdio.

That $2 markdown may be small, but Apple’s failure to secure it reflects a shift in the company’s relationship with the music industry.  While Apple once enjoyed enormous negotiating power as the dominant force in digital music — an area it helped pioneer more than a decade ago with music downloads — it now faces an array of new competitors and finds itself in the position of needing to modernize its offerings to catch up to the streaming revolution.

That has weakened Apple’s leverage — and the labels could not be happier about it.”

Image: Doug Morris, CEO and Chairman of Sony Music Entertainment.  “Basically, I equate ‘free’ with the decline of the music business,” Morris recently commented

51 Responses

  1. Name2

    According to several music executives, who spoke on the condition of anonymity because the talks are private

    Sounds like the setup for a vaudeville joke: “How private are they?”

    Reply
    • The Better Fix...

      Instead of demanding a per month price to consumers, the labels should just demand a per stream rate from streamers. Problem solved. 2.5 cents per stream, no matter what. 5 cents per stream no matter what… let these cash flush tech companies figure out how to pay the per stream rate. Why demand what they charge consumers, let Apple, Spotify and everyone else give away their music….

      Would we care if Tower Records gave all their inventory as long as they paid us for it? No. As usual the record label brain trust gets the economics wrong by putting the cart in front of the horse. If the labels want music to have value, start charging a valuable fee for it. What the streamers do from there is their own business.

      Reply
      • Paul Resnikoff
        Paul Resnikoff

        There might be a wholesale cost discussion behind all of this; i.e., the cost demanded by the major labels might be too high to allow an $8 per month service. I’m not sure if that can be boiled down to a per-stream costs, as labels typically demand one or more of: equity, upfront advances, per-stream payments.

        Reply
  2. Name2

    Apple recently tried but failed to persuade record labels to agree to lower licensing costs that would have let Apple sell subscriptions to its streaming service for $8 a month

    You know it’s all over when you have to collude to fix other companies’ prices.

    Reply
  3. There is something...

    Wonder if major labels could be sued for collusion over that kind of deal… When several companies get together to make price going up, the EU usually don’t like it…

    Reply
    • Anonymous

      I seem to remember that they actually were sued over this in the last couple years. No idea what the outcome was.

      Reply
      • Paul Resnikoff
        Paul Resnikoff

        I think you’re referring to MAP, or Minimum Advertised Pricing, a collusive pricing effort in the 1990s by the major labels to force a pricing floor on all CDs sold (back then, at brick-n-mortar locations). The effort was deemed collusive and illegal, though — someone help me here — I think modern-day pricing sidesteps that by focusing on mechanisms like ‘most favored nations (MFN)’ clauses and other ‘colluding without actually colluding’ tricks.

        So, both the CEOs of UMG and Sony might publicly speak out against free streaming, and act accordingly, but they can structure things so that there is not a definite, collusive ‘smokey room’ where prices and rules are set.

        Reply
        • wallow-T

          MAP: I’ll just chip in that the noble purpose of MAP was to prop up indie, mom-and-pop CD stores — and even big music-only chains like Tower — in the face of loss-leader pricing from “big-box” stores like Wal-Mart and Best Buy who were using cheaper-than-wholesale CD prices to get customers in the door for other merchandise.

          Stores which only sell music can’t really use music as a loss leader. 🙂

          So, remember that the destruction of independent CD retail was official government policy!! 🙂

          Reply
          • Paul Resnikoff
            Paul Resnikoff

            This is becoming ancient history, but yes, CD loss-leading by large, ‘big box’ retailers was having a big impact on indie retailers. Well, that’s a far broader story (just look at any smaller retailer vs. Wal-mart over the past few decades), but forcing a minimum price still satisfied the requirements for government regulatory action. Actually, Remi’s comment below suggests this was overturned and re-evaluated, but I honestly haven’t been keeping track.

            Now, whether the MAP action constituted a good use of government resources is another question, entirely. Frankly, I’d rather have the government focusing on bigger consumer protection issues on my behalf. And, markets move fast: after a while, technology unleashed a tidal wave of consumer backlash against the major labels and CD pricing. These days, CDs are becoming irrelevant, especially for listeners under 35 (i.e., a giant section of the music-enjoying population).

            We didn’t need any bureaucrats in the end.

        • There is something...

          Speaking against free membership is one thing, but if they do “force” streaming services to set à minimum monthly of $10, that’s where it may become an issue. I don’t know, I’m not a lawyer and it’s probably a very complex issue. But it looks like a potential issue…

          Reply
          • Remi Swierczek

            MAP is actually legal in US as of 2006 thanks Leegin decision of US Supreme Court.
            Total nonsense in almost any type of business.
            Responsible for $19.99 Gillette shavers or $6.99 cereal boxes.

            It will not help music industry relying on streaming as a backbone of income!

            MUSIC HAS TO BECOME MERCHANDISE AGAIN, it’s simple task, and there is NO WAY AROUND IT!

        • Name2

          And one of the really wonderful results was a giant dump of thousands of CD singles of Whitney Houston’s “Star Spangled Banner” to America’s schools.

          Because for the kids.

          Reply
        • Musicservices4less

          Hi Paul, I believe it was deemed collusive because 1. they found evidence of talks between the labels, 3. it was the labels setting the actual prices selling direct to the stores, and 4. No actual contract/licensing agreement was involved just invoicing. In this Apple situation, the labels are not setting the prices, Apple is. And this is a private licensing situation. Even if it appears to be collusive, the major labels always have the litigation gamble on their side because they financially plan for it ahead of time and reserve a budget for it. And it would take years winding its way through the courts and by that time, the way the speed of digital delivery is advancing, it would probably be irrelevant by the time a decision is reach and the consumer/Apple may not even win!

          Reply
  4. Remi Swierczek

    They still do not use calculators. Actually even calculator will not help!

    Subscription price and total number of subs required to make normal industry are subject to CATCH 22.

    $6.49 generous and realistic global AVG might deliver $20B by 2025 – we need 250 million boys and girls.
    or $14.99 global AVG can do same $20B by 2025 – here we need just 110 million folks! Good luck in both cases

    No matter how we play it we will end up in ten years at 1/3 of inflation adjusted 1999.

    I suggest to convert Radio and streaming to discovery based music store! $100B music industry by 2020!
    We got all resources to start NOW!

    Reply
  5. Casey

    Not really a surprise. $8 per month would have given Apple a strong competitive edge. Other companies would have wanted the same deal and the record labels would have to either give them the deal or risk history repeating itself with Apple coming out on top of streaming like they did for downloads. Do we really want to go down that road again?

    This doesn’t have anything to do with free services.

    Reply
  6. Anon

    It’s my understanding that Apple can set their subscription price to whatever they want, they’ll just have to pay the labels based on a $10 rate. If Apple wants to be a loss leader, that’s their own prerogative. Apple doesn’t operate in the discount space though and I don’t think their service will increase iPhone/iPad sales, so if they have to pay on a $10 rate, they are not going to sell for $8. Just my 2 cents.

    Reply
    • Anonymous

      “Apple doesn’t operate in the discount space though”

      That’s actually not true — look at Logic Pro and OSX.

      Reply
    • David

      Sure, but if they are following the model of other streaming services, they will be proposing to pay a fixed share of revenue, which is affected by the subscription price.

      Reply
    • danwriter

      It’s not inconceiveable that Apple would operate the streaming service in the red, at least initially. iTunes wasn’t created to make a profit but rather sell iPods. Apple doesn’t have an obvious hardware play this time around. Yes, they’re finally getting serious about streaming video (a new Apple TV is expected later this year) but that has little or nothing to do with the labels. Apple can certainly afford to subsidize Beats for a period of time, then raise the price if/when it hits the right tipping point.

      Reply
  7. py

    Apple no longer has that power especially in the streaming era and besides back then they were pretty passionate about offering a business model without any form of free tier.give them a 30 seconds preview and their after pay to have the music. with spotify ,its giving free tiers hoping that they will pay with out any restrictions to motivate them to do accordingly. sounds to me like a mith.

    Reply
  8. Anonymous

    What I don’t get is this old-school audio-only obsession.

    Can’t they see what’s going on in the real world? Youtube, Vine, Facebook video, Vessel, Meerkat, Periscope.

    Reply
    • Versus

      What’s old school about audio only?
      Most of music is listened to without looking at some corresponding video at the same time.
      Even those who “watch” music on YouTube are often listening without watching the video.

      Reply
      • Sarah

        I agree – for music, I (and I think many others) prefer audio-only for music generally.

        So I don’t think audio-only is old-school at all. I think what’s “old school” is trying to force a specific format and delivery on consumers, instead of giving them what they want, how they want it.

        As the artist/business, your primary concern should be making money – not whether a fan watches video or just listens to the audio, or whether he wants a vinyl album, CD, or streamed delivery. If it’s what your fan wants and you get paid on terms you find acceptable, what do you care if he prefers audio or video, vinyl or streaming? Give him options and let him choose.

        Value is personal. Highly individual and variable. Music is probably the best example of how value is completely dependent on the consumer, because its value is almost entirely subjective (rather than the more common mix of subjective and objective values that most products have; objective value being things we can measure).

        You want money? Make it easy and attractive for people to pay you in a way that reflects what they, personally, value about your work. Don’t insist on $0.00 when someone is willing to pay you more than $0, and don’t make people jump through hoops to buy your stuff or pay you.

        Reply
        • Anonymous

          “I (and I think many others) prefer audio-only for music generally”

          No, you really don’t.

          Anybody — yourself included — will take a complete work of art over a crippled one any day of the week. That’s human nature.

          You can always turn off the part you don’t want, but you can’t add it. And that’s why your video service is going to destroy your audio-only service. 🙂

          Reply
          • Sarah

            You can always turn off the part you don’t want, but you can’t add it.

            In other words, give me video, and then I can choose video or audio according to what I want? Video is always better than audio because it necessarily includes the lesser audio-only option? If that’s correct, you seem to be advocating consumer choice, ultimately, in which case we’re in total agreement.

          • Anonymous

            “Video is always better than audio because it necessarily includes the lesser audio-only option?”

            Perfect — that’s how it should be pitched.

            More is always better. Choice is always better.

          • Name2

            If I want a titty show, I know where to find it, thanks.

            I don’t want my music stalling from video buffering.

          • Anonymous

            “I don’t want my music stalling from video buffering”

            Just turn off the video if you really think that’s an issue today (you can do that on Music Key)…

            Again, choice is always better.

          • Name2

            Great. Can I opt out of paying for synch rights I have no desire for??

          • Sarah

            Maybe they should get video when they want video, and audio-only when they want audio-only?

            What is with all of this “my way or the highway,” black-or-white mindset? It’s like you think that if someone else wants video, it means you’ll be forced to watch slow-buffering “titty shows” with your music for the rest of your life. You won’t, I promise. 🙂

          • Name2

            As long as my membership dues aren’t subsidizing giant synch payouts so Taylor Swift can get paid for her videos, cool beans.

          • Sarah

            Well, duh. 🙂 Why should you pay for something you don’t want or use? I wouldn’t do that either.

          • Anonymous

            As long as my membership dues aren’t subsidizing giant synch payouts so Taylor Swift can get paid for her videos, cool beans.

            Erm, its safe to say that the dot swizzle recuperates her video costs through just the streams alone, which is optimal, as then she or whoever can pick and choose the more commerce type funding if any at all, which allows her and her people to be creative and artistic at a high level…

            Some of these people get enough views to recuperate and make some money, most don’t…

            What sync rights are you talking about? Im hard on the business, but lets stop with the paranoia and delusion already, all it takes is some research and due diligence and finding some of the right people who will be more then happy to give you the information you need into how it all mostly works…

            wow…

          • Name2

            You’re being disingenuous. You know there’s a separate sync right for play alongside visual content. In an ad-free, monthly-fee environment, the Taylor Swifts of the world aren’t going to be monetizing video ads.
            But publishers will, up front, want more for the privilege of the tech outfit even thinking of presenting video.

            They’re still mad because they think MTV should have been paying them to run their commercials non-stop night and day.

          • superduper

            The point is not to give the consumer whatever they want no matter what. The point is to give the customer the very best option within the restraints of a solid business model. If businesses cater to the consumer without a second thought to ways in which they are supposed to run their business they would go bankrupt. Remember you can’t always get what you want.

          • Sarah

            The point is to give the customer the very best option within the restraints of a solid business model.

            Well, I guess we disagree on the point. I think the point is for artists to make as much money as they possibly can from their work. And I don’t think you get there by saying “here’s the one option we think is the very best, take it or leave it” – I also happen to think the evidence agrees with me.

            This is what Spotify is. It’s also what iTunes, YouTube, and Pandora are. Each business says “here’s the one option we think is the very best, take it or leave it.” They all choose different “one option”s, but it’s the same approach. And each and every one of them fails to bring in as much revenue for the industry as they could. You will never get one single option that maximizes industry revenue – even if that option is theoretically “the best.”

          • superduper

            I can safely say that if artists make money the only way to get there is in truth offering one option that is the best option and focusing largely on that option.

            Also, it has been discussed at length but Spotify, Pandora, etc are not the “very best” options for the industry at large. As it has been even more strongly proven, it is better to actually sell music rather than rent individual tracks out by a fraction of a penny.

          • Versus

            Amazing how you know what others want. Clearly psychic.

            I don’t consider music an “incomplete” work of art.
            By your logic, the only complete work of art would involve all possible senses, human and otherwise.

      • Anonymous

        “What’s old school about audio only?”

        Audio-only is not just old-school, it’s crippled art.

        People always wanted to see the stars — and now they can. So let them. Do you have any idea what it costs to make a good music video? The visual components of a hit today are exactly as important to artists, producers and fans as the audio. And fans want it all. Not just 50%.

        Audio-only today is like silent films after 1929: It’s still charming, but it can’t compete with the total experience as intended by artists, directors and producers. And that’s why it’s going to disappear.

        Reply
        • Anonymous

          “What’s old school about audio only?”

          Audio-only is not just old-school, it’s crippled art.

          People always wanted to see the stars — and now they can. So let them. Do you have any idea what it costs to make a good music video? The visual components of a hit today are exactly as important to artists, producers and fans as the audio. And fans want it all. Not just 50%.

          Audio-only today is like silent films after 1929: It’s still charming, but it can’t compete with the total experience as intended by artists, directors and producers. And that’s why it’s going to disappear.

          hahaha

          thanks for the early morning comedy routine…

          🙂

          No one has the budgets to bring it all to video, and the budgets of those who can are dwindling, so good luck on that…

          Music has never been about visuals, and hearing is our strongest most heightened sense, we listen to music everywhere all the time where video or visuals simply isnt possible or an option, so the audio only will always be the foundation and the focus…

          Seriously, if no one has the money to make videos, and the cheap low budget indy videos actually take away from the music, how is audio only going to disappear?

          Reply
        • Versus

          Counter-example to disprove your generalizations:

          I’m a people and have little interest in videos of musicians. I want to hear the music, and find the videos are usually an unnecessary distraction, not an enhancement of the music. Furthermore, they interfere with my own imaginative interpretations of the music by all too frequently imposing a specific story or vision upon the music.

          Reply
          • Sarah

            I agree. While I occasionally am interested in a video, I generally prefer my own “imaginative interpretations.” But his point, if you read the comments above, seems to be more about offering both options so that consumers can choose either video or audio-only. If you offer video, they can choose audio-only; if you offer audio-only, they can’t choose video.

  9. Splash of Real

    I don’t think $8 would be a competitive edge. Most people don’t want to do the searching and collecting work needed to benefit from an on-demand service. Big market for free listening. Small market for lean-in collecting. If Apple couldn’t leverage its distribution power to make iTunes Radio impactful, it’ll be even harder to develop a market for Beats (or convert from Spotify). Two bucks a month won’t do it.

    Reply
  10. Nissl

    As others have said, it would have been a bad move to accept the $8 rate. Surely all of Apple’s competitors would then insist on it too, and the only lasting result is that they would have cut the cost of music even further.

    They should be looking at genre bundles, paygo, maybe monthly subscriptions capped at a certain number of plays in order to bring new listeners in through the door at a price below $10/month.

    Reply
  11. Versus

    Good. $8 is clearly too low, since even $10 services cannot make decent pay-out rates.
    $10 is a good starting point, and then the prices should rise over the years, like all other services (Netflix, cable TV, etc) do.

    Reply
  12. Anon

    The majors don’t need to collude because they won’t do a deal without a favored nations clause. Plus, with all the leaks, the other companies know exactly what to ask for.

    Reply
  13. JeffC

    Aside from this discussion, which is at least a little bit interesting to see various perspectives from “both sides” of the issues at play here, thanks for using a picture that guarantees most people cannot link to the article without offending someone or getting fired.
    Well done!
    ALWAYS go for the inflammatory option.

    Reply
  14. FarePlay

    If the majors want to experiment with eliminating free; start with Spotify and Pandora, not Beats. You fuck Beats up out of the gate and you can kiss the future of paid music sales goodbye.

    Unbelievable, and all of you Apple haters are invited to respond, Apple is one of the few positive things to have happened in the digital space for musicians and songwriters in the past decade. Like em or hate em; they’re transparent and they pay.

    Reply
  15. Willis

    I choose neither, and have decided to pull out all my old records. Now who is in control? Me!

    Reply

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