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.