Apple Music plans to significantly increase songwriter royalty rates. That could be a genius move.
In a recent proposal to the US Copyright Royalty Board, Apple suggests that the royalty rate for publishers should be set at 9.1 cents per 100 streams of a song. Though an Apple Music official confirmed these reports, the filing is private and no other details have been shared. If the proposal is accepted, the new royalty rates will be set in stone as of 2018.
What does this mean for Apple Music?
At last count, Apple Music had surpassed 15 million paying subscribers, which is half the amount of major rival, Spotify. Having only entered the streaming music market last year, Apple has achieved massive success, and hit milestones that took Spotify significantly longer to reach.
Now, it’s time to crank up the heat. By implementing these royalty rates, Apple hopes that it will not only win over artists, but also result in more juicy exclusives. In its short existence, this isn’t the first time Apple Music has tried to rattle Spotify. Indeed, this is a constant battle: Apple Music has been securing back-to-back artist exclusives with the likes of Drake, Chance The Rapper, Snoop Dogg and several others, in a direct bid to compete with Spotify. By exclusively releasing content by big name artists, Apple has sparked a surge in signups, with many continuing well past the three-month free trial expiration.
With the strategy translating into huge success for the platform, Spotify has apparently decided to do the same. The first move in that direction was hiring Troy Carter, who insiders say is tasked with securing exclusive content. Carter’s cred comes from heavy-duty industry and tech experience, including a high-profile managerial relationship with Lady Gaga.
But let’s see what happens next: Spotify previously indicated that artist exclusives are ‘bad for artists, bad for fans.’ And we haven’t seen any juicy exclusives from Spotify as of yet.
But back to the current battlefield: publisher royalties. And the first strike by Apple is a strategic no-brainer. Increasing songwriter royalties will get the attention that Apple wants from content creators, and paint a stark contrast to the confusing, frustrating royalty picture at Spotify. Indeed, Spotify has been spending the last months battling mega-lawsuits from songwriters while desperately negotiating with publishers over unpaid mechanicals.
Apple, striding into that messy scene on a pristine white horse, is now offering a comfy, guaranteed payment that simplifies it all — with a simpler, fatter check for everyone.
What does this mean for Spotify?
As Troy Ave might say, ‘it’s all about the motherfuckin’ money.’ Well, we know Apple can afford to pay out more, hence the proposal. But will Spotify be able to keep up with the payments, and is this going to be detrimental to the future growth of the service? Indeed, Apple is eyeing a hearts-and-minds victory while starving its over-leveraged enemy.
Bear in mind, Apple has the ability and scale to inject large amounts of cash into funding artist videos, revamping the platform, and adding more features without the need for debt financing. Spotify, on the other hand, is tending a dangerous cash bonfire, with a recent $1 billion convertible debt tranche required to maintain its ambitious expansion. Apple knows quite well that increasing royalty rates may result in Spotify struggling to keep up. More cynically, some are now speculating that despite trying to promote themselves to rights holders, this was just a simple tactic to drain Spotify’s cash supply.
All of which brings us back to Spotify’s battle against massive litigation over non-payment of mechanical licenses, which is part of the publishing payout. When it comes to Spotify, songwriters and publishers have been complaining over a lack of transparency in payouts. They simply can’t make sense of what they’re getting paid. By advocating a set royalty payout, the service is giving songwriters and publishers the transparency that they’ve longed for. And the villagers rejoice.
Yet another layer of complexity comes from ‘freemium,’ a controversial free tier that Spotify believes is a critical pipeline to premium. Perhaps, but Spotify is under heavy pressure to make artists believe and support their business model, one that includes both a free ad-supported and a premium paid tier. Unlike Spotify, Apple Music doesn’t have a free tier, and this is what sets the two services apart. It’s also what artists find appealing about Apple Music — their art remains valued and served to paying customers. That alone has helped Apple Music secure its reputation as a more artist friendly platform.
With this, and an increased royalty rate, Apple Music may well have the ability to expand quickly and overtake Spotify.
In my humble opinion, restoring a direct relationship between the media that is consumed and the revenue that is generated by that consumption is the only true long term “fix” for these all you can eat subscriptions.
$0.091/100 streams is a much better rate than what free/ad-supported services are paying now, and would certainly go a long ways towards forcing Spotify and others to abandon their free services (which would be a good thing).
However, this rate is also significantly less than what paid subscription services are generally paying per stream for mechanical publishing rights. The rate varies each month depending on revenue, payments made to labels, and the number of subscribers. When there’s subscription revenue involved (instead of ad revenue), it looks like the mechanical publishing rate is typically in the neighborhood of $0.10-$0.22 per 100 streams.
How about a $0.091/100 stream floor instead? In other words, use the same percentage of revenue/label payments formula we’re using now, and if the resulting royalty rate is less than $0.091/100 streams, the rate is automatically increased to $0.091/100 streams. If the resulting royalty rate is more, than that greater rate applies.
That would shut down the free services, increase subscribers and subscription revenue, and ensure publishers don’t get their rates lowered.
Granted, this will work much better if they update the DMCA to include a take down and stay down provision, so the free Spotify users don’t just flock to YouTube instead of getting paid subscriptions.
“Granted, this will work much better if they update the DMCA to include a take down and stay down provision”
Great post, btw!
Agreed completely. If songwriters are forced into licensing services, there should be a floor. What the industry needs to be careful about though, is that any increases in songwriter royalties don’t end up coming right out of artist royalties. Spotify could easily pull that trick to hold their bottom line.
Hard to say if a DMCA fix would change Spotify’s tune on the free tier. They might still insist on it until they IPO. That’s all investors care about…an exit. Then let the rest of the suckers figure out how to sustain a business. Current DMCA/Youtube certainly isn’t helping though.
That is an excellent rate, and any artist that doesn’t jump all over that is a fool.
“In a recent proposal to the US Copyright Royalty Board, Apple suggests that the royalty rate should be set at 9.1 cents per 100 streams of a song”
I can’t wait to see how Spotify’s going to fight this in public without looking like absolute a**holes.
They can hire whomever they like, Jay-z and tidal have the biggest and attractive artist pool. So you dont have to mention tidal, however apple will have pay up sooner or later to aquire it.
Fixed rates and streaming music just doesn’t work. This article must be based on false information.
No, Apple really did suggest this plan. Their reasoning is that a fixed rate would both force Spotify’s free/ad-supported services to close, AND give them a discounted rate to publishers for subscription royalties. It’s quite clever, and might work if publishers aren’t paying attention and see that this rate is actually less than what they’re making from subscription services now. For publishers, I think this is a bad deal.
Ummm…someone please help me here.
I had 62,000 streams in Spotify last month.
62,000 x .004 = yields $248.00
62,000 divided by 100 streams at a time is 620
620 x .09 = $55.80
What am I missing here?
Are those royalties for sound recordings or the underlying compositions? This royalty rate pertains to the latter only. If this is the latter, it would appear your current rate is much better than what Apple proposed.
I am unaware of different payout rates from Spotify.
The only two I know of are low and even lower.
9 cents per stream would have yielded me 207,000.00
Instead I got 12,000.00 and it took 3 years to get it.
“Low and even lower” sounds like publishing royalties. The proposed rate is actually 9 cents per 100 streams (rather than per stream), which would’ve yielded $2,700.00, or a little less than a quarter of what you were actually paid under the current rate.
Maybe this proposed rate isn’t a good idea…
Sorry, I meant $2,070.00. Typo.
That’s because Spotify is actually pays you more $0.25 (25 cents) per 100 streams then Apple’s current proposed rate ($0.091 or 9.1 cents per 100 streams).
Apple is a wolf in sheep’s clothing.
We need Spotify and the competition.
They dictated the music industry once with iTunes, so they will invest to win no matter who suffers. They will stick it to Spotify, then find ways to control and stick it to labels/artists with Apple Music.
Simple example: The guy who ran Amazon music tried to create custom band deals and was constantly hindered. Apple would screw up his deals by pressuring the labels with their hand on the “turn your artist’s catalog off” button. Further, anyone at a label, who ever dealt with Apple will have similar stories.
Apple, looks a rosy with this one, they’ll stab you in the back as your cashing the check!
Spotify is currently paying about $0.25 (25 cents) per 100 streams so…the industry is actually getting less from this deal with Apple ($0.091 or 9.1 cents per 100 streams). But, nobody’s talking about that.