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Apple Music free trial saga may not be over as Apple likely won’t pay full royalties during trial

Just as we thought Apple’s u-turn would put an end to the controversy over its original intention to pay artists nothing during the free trial of Apple Music, a statement to the WSJ suggests that there is still time for the saga to turn into a PR nightmare.

While everyone assumed Apple would now be paying artists and publishers the 71.5% royalty rate from day one, it appears the actual amount paid during the free trial will be lower.

Apple declined to say how much it plans to pay during the trial period, though it said the rate will increase once customers start paying for subscriptions.

Eddy Cue’s tweets in response to Taylor Swift’s open letter said only that Apple “will pay artist for streaming” and “will always make sure artists are paid,” stopping short of promising to pay the full royalty rate from day one … 

Existing streaming music services like Spotify pay a lower royalty percentage during promotional periods. For example, during a Spotify promotion where subscribers pay just 99 cents for the first three months, the WSJ says Spotify pays artists 35% rather than 70%. If Apple took the same approach, reducing its standard royalty rate by half, it would be paying 35.75% during the free trial – or even less if it mirrored Spotify’s terms for its free tier.

The complication here is that the actual calculations needed to arrive at the 71.5% can’t be done until Apple has paying customers. The way the 71.5% royalty will work for paid subscriptions is like this:

  • Apple totals up the subscription revenue each month
  • It allocates 71.5% of that sum into a pot of money for royalties
  • It divides that pot by the total number of tracks played to get a per-listen sum
  • Then multiplies the per-listen sum by the number of listens each artist got, and pays them that sum

Since Apple has no way to know what the total subscription revenue will be, it will either have to estimate this up-front, or back-calculate royalties for the three-month trial once it is over.

An earlier calculation had suggested that the extra 1.5% Apple was offering above the industry-standard royalty to compensate for the three-month free trial would have taken eight years to pay off.

[tweet https://twitter.com/degusta/status/612799491482128384]

The math there was very simplistic, however – including the assumption that having the free trial wouldn’t result in any additional paid subscribers, which is obviously not going to be the case.

Apple has only a short time left to agree revised terms with artists before Apple Music launches on 30th June via an all-new Music app,

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Comments

  1. It’s almost like demand from bank to pay my salary while my startup is taking shape…

    • I’m not sure. I wonder how more “traditional” subscription services work. Think of a traditional pay tv service. They might offer one month for free to attract new customers. But they pay for all the tv show and movie rights beforehand, don’t they? How does that work with Netflix? Do they pay their content providers per stream or is there a fixed sum? I don’t know. Newspapers and magazines: they don’t pay less for writers and other contributors when they have a marketing campaign to attract new subscribers. They have a marketing budget for that.

      • Rich Davis (@RichDavis9) - 9 years ago

        The Netflix model is different, they don’t pay a per stream, they negotiated a total dollar amount from the content (Movies and TV) for their respective content, which is why Netflix actually makes a profit. With the music related content, I believe they pay per song streamed. So those that listen to more songs per month is less profitable for the subscription service than when users only listen to less or no songs per month. Maybe that’s the difference between these subscription services actually making a profit, since the other factor is how much they have to pay for the bandwidth serving the customers. More subscribers, means more bandwidth required turns into increased overhead costs.

    • Thomas Brahe - 9 years ago

      This analogy couldn’t be more wrong! When you release an album or a track it’s the final product of a long process that included a lot of investment – in time as well as in equipment. In what other marketplaces do you give away products that you’ve developed – for free – for three months – to everyone who’s interested? Cars? Home stereo? Computers? Fishing equipment?

      • vpndev - 9 years ago

        How about “movies” ??

      • Jose Montiel (@tpoccu) - 9 years ago

        Computers definitely, it isn’t like it takes Apple three weeks to make a new version of OS X.

      • Paul Andrew Dixon - 9 years ago

        Car companies allow you to test drive cars for free with obligation to buy and no money being exchanged…

        Food and drink companies launching a new product will give out free samples.

        Companies including Apple do give out tech for free (they just gave that baseball team all that free stuff) plus they gave out free apple watches to help promote the product

        Many companies offer free trials, interest free periods, 30 days money back guarantees…

        The difference here is that mostly the small unknown artists will benefit more than how the industry currently is — their music will have a better chance of being heard and making them money than putting up a costly album on iTunes that not many people buy because they are not prepared to spend money on someone that is unknown – many would rather wait to see if they become popular…

        Apple music you could argue has been in the process of making since before the launch of the first ipod…

        Technically apple could argue that they are also providing a service for artists to help get them recognised and that the cost is 30% — so rather than change them during the first 3 months, they wont…

        The artist are expecting to be paid 71% of zero — which is zero… apple have been kind enough to say “ok, we’ll pay you something because people will be listening to your music”…. This money is coming directly from Apple’s pockets to cover the costs… But apple could equally say “well what about the 30% we take for distributing your music? If we are covering the cost of the people to pay you, then you should cover the cost to pay us.”

        There are plenty of artists that were on board and saw the benefits… just a few dimwits who don’t understand the bigger picture kicked up a fuss.

        So what if you spend hours, days, weeks, months, or even years making music and expect to be paid for it… there are companies that do the same and the product is never makes it … apple have had it’s fair share of products that havent done well or even been released…

      • Thomas Brahe - 9 years ago

        @ vpndev, @ Jose Montiel, @ Paul Andrew Dixon

        Movies is an interesting comparison. Would the studios accept not being paid for three months?

        I know it’s not that easy, because once the customers amount within the subscription platform and once times passes by, the platform could certainly be a place within which it’s worth releasing new products. The problem is not so much for the big labels – they will survive the first three months due to a constant stream of new products (albums) being released on multiple virtual and physical platforms all the time. And they can wait and be patient until revenues start streaming after three months or even years from Apple Music.

        The problem is for the smaller artists who may only release a new album every three years and who are not backed by a big label. And yes, true art may not necesarily come from the big labels! So, would I, as a lesser known and upcoming artist, release my new album, which has been 4-5 years in the making on Apple Music from day one? Of course, I could hope for promotion through that platform. Fair enough. But how do I pay my bills for three month when noone is paying for using and enjoying (hopefully) my art? I can see many scenarios where I would not release my new album until the platform could give me SOME kind of compensation for my hard work.

        And another point: not all music transcends time and space – MEANING that some music SUDDENLY become a global or local phenomenon but dies after a couple of months. I would certainly not risk being that artist: releasing my music on Apple Music on day one with no paying customers, get millions if not billions of streams – but not a single penny :-)

        Music is a funny mix of art, joy, and business. But it can never, in a meaningful way, be reduced to just one of those.

  2. nemesisprime - 9 years ago

    This is stupid. If you expected Apple to shoulder the entire responsibility, then you’re ridiculous. The labels, who signed and helped to form the original contract on behalf of the artists they represent, should be sharing in distributing what’s due if someone expects full royalties during the period.

    I don’t know where people are getting this idea that Apple, who isn’t even a dominating force in the streaming market, just threw down a contract for these labels to sign without interjection. Apple is a business and it is up to them to drive the hardest bargain they can, just as it is up to the labels to drive the largest bargain for themselves and their talents – which they thought was acceptable or exhibited an extreme lack of consideration, since it is so bad. Two groups of people contributed to this plan.

    IMO it’s not up to Apple to see how artists are paid unless contracts are directly signed to them. Apple makes the agreement with the label and from that point, it’s the labels responsibility to under see the payment in exchange for the deals made on the artists behalf. It sure works in positive cash flow situations…

    • TechSHIZZLE.com - 9 years ago

      Exactly.

      The labels are getting a free pass in this whole “controversy”.

      • NQZ (@surgesoda) - 9 years ago

        Unfortunately that’s how it goes – the labels and right’s holders are the gatekeepers, and they can pretty much dictate the terms to allow the gate to be open or closed to whatever service they want to do business with. If anything, they have too much power, and just from what I’ve read from most of the artists I listen to, they aren’t exactly on the artist’s side all the time.

    • vpndev - 9 years ago

      I think we’re missing the difference between “established” artists with contracts with big labels (who take a big slice) and artists who have small contracts or none at all.

      My suspicion is that Apple, in drawing its plans, focussed mostly on the big labels and big artists and didn’t adequately consider small and indie musicians. That oversight has come back to bite them in a big way.

      Its also puzzling that Iovine missed this. That (deep, detailed familiarity with the music business) is one of his strengths.

  3. Rich Davis (@RichDavis9) - 9 years ago

    After 8 years and 4 months? How many songs are even listened to 8+ years after their release? Only a VERY small portion. Heck, most pop songs have a shelf life of a year, give or take a few months until people get sick of a Top 10 hit and move on to the next one. how many artists even last that long in the industry? Plenty of one hit wonders. What artists does this really cater to?

    For anyone with spare time on their hands, here’s a site that’s explains a lot more detail regarding music related royalties.

    https://www.royaltyexchange.com/learn/music-royalties/

    • TechSHIZZLE.com - 9 years ago

      That guy’s “math” is so simplistic as to be a complete farce.

      Any calculation that doesn’t factor in retention, etc., is a total red herring. If I were his business professor I would be ashamed of myself because I clearly didn’t teach this guy anything.

  4. AeronPeryton - 9 years ago

    The din has fallen to such a low intellect level that I am just going to tune it out. Only seven more days before I can tune it out with Apple Music.

    Someone give me a full list of all the artists who are still experiencing a tummyache. When they slink back to Apple after they see all the money they’re leaving on the table, I will gladly stream their stuff for the rest of my life, but I will never purchase it ever again.

    • thejuanald - 9 years ago

      Do you work for free? No? Then shut up.

      • If you were my employee, after reading that comment I’d have to let you go, because clearly you don’t have the comprehension necessary to do your job.

      • I do when tutoring your children after school because you can’t, so why don’t *you* shut up, tuff guy?

      • AeronPeryton - 9 years ago

        I am a teacher and I often do voluntary work for the sake of education. So yeah, I do.

        That is not what this is about, my young padawan learner. No one is being told to create new music for free. This is existing content that is being played without loss to create more subscribers that would then pay for the service and begin the mammoth cash flow. And Apple had already setup an incentive that out-payed every other streaming service to make up for the extended trial period. This is about artist getting paid better than they will be with anyone else, yet still wanting more.

  5. varera (@real_varera) - 9 years ago

    well… let them ignore apple, who cares? it is all about volumes. if they think apple streaming will bring volumes lower than others, let them place this bet. that calculations about being compensated in 8 years assumes the volumes are comparable and identical. i hardly believe it is the case.

  6. Walter Tizzano - 9 years ago

    This whining has become really annoying. Artists are not force into Apple Music: those who don’t like its terms can keep distributing their music with the services they prefer.

  7. Cyclonus5150 - 9 years ago

    Wait…so Spotify and others pay a much lower rate during promotional periods, correct? Where’s your story then? Sounds like Apple is simply falling in line – potentially being more generous given that others are charging a little bit of something during the promo. What’s the issue here?

  8. irelandjnr - 9 years ago

    Just when we thought the WSJ was gone out of existence they create more controversy.

  9. PMZanetti - 9 years ago

    I have a better idea, Apple should cancel Apple Music and say, “Nevermind…we were going to use our power of innovation and influence to create another revenue stream for you artists out of thin air…but since all you can do is bitch and complain about free money…we’ve decided you don’t deserve it.”

    Where would any of these so called artists be without Apple’s innovation and commitment to music over the last decade and a half? How quickly spoiled brats forget.

  10. Arin Failing - 9 years ago

    Assuming Apple knows exactly who is signed up for the free trial, and how they connect to iTunes store (e.g. my wife and daughter’s iTunes store accounts are connected to mine, as a “Family”, which would land us under the $14.99/mo umbrella), I would imagine the math would be extremely simple: plug in the variables (how many single/family accounts are using the free trial), then solve for X, using the royalty formula above. As an example: 10 individual subscriptions WOULD amount to $99.90, and 10 family subscriptions WOULD amount to $149.90 – together, that comes to $249.80. 249.8 x .715 (royalty rate)= 178.607. Continuing hypothetical numbers, let’s say the collective subscribers listened to 1,000 songs, of which 100 belonged to Taylor Swift. So that’s .178607/track. And at 100 songs for T Swift, she would be paid $17.86 for the month (out of Apple’s pocket). Obviously, the artists will have to wait until the first month is over, but it seems to be easily calculated math.

  11. 70%, 71.5%, 30%, 35% whatever% of 0 is… 0. Time for some folks to learn basic math. To pay anything up front requires assigning a dollar value to each subscriber – what should that value be? $9.99? $14.99?

  12. TechSHIZZLE.com - 9 years ago

    “While everyone assumed Apple would now be paying artists and publishers the 71.5% royalty rate from day one”

    No. No one assumed this.

    In fact, everything I read assumed that Apple would NOT be paying the full royalty during the free trial. Apple has given in enough to this petulant “artist” who is so altruistic and worried about her fellow poor “artists”.

  13. galley99 - 9 years ago

    Independent artists can continue to distribute their music through Bandcamp and received 85%.

  14. Bill Shamblin (@bshammy) - 9 years ago

    Not paying for work rendered is wrong.

    Apple is working to improve the woking lives of manufacturers’ employees in Asian, supporting the LGBT community and making real efforts in green energy. These progressive stances are something that as an AAPL shareholder, I’m glad to see.

    Yet, given these company efforts I’m having trouble understanding why Apple is not providing more support for members of the recording community — who are being abused by streaming services. Musicians have lost the vast majority of their royalty income — Spotify pays artists an average of between $0.006 and $0.0084 per song stream (http://www.trustedreviews.com/opinions/why-musicians-hate-spotify#cO45T4FWEHLLeSeL.99). That blows. Yes it’s better than nothing, much like eating out of a dumpster is better than starving.

    Apple has built a huge part of it’s business off of music. It would be nice to see them realize that and work to actively support musicians.

  15. Thomas Massengale - 9 years ago

    If Apple wants to build the Apple Music streaming business, it goes without saying that they should be paying the tables and artists full price if they want to have a free trial in which they give away the labels’/artists’ products. The artists and labels don’t need Apple to build Apple Music. Somebody will stream the products, and pay for the privilege.

  16. Charlypollo - 9 years ago

    Artists without Apple Music will manage to survive. Apple Music without the artists… well, they’ll have to literally extract music from apples because otherwise, it would be dead.

    Discussion is over.

    • francoborgo - 9 years ago

      in 2006, 13,2% of the price of CD was for artist, producer, writer, and 30 % for music label.
      The rest 56.5 % was for distribution.
      https://bandzoogle.com/blog/record-sales-where-does-the-money-go
      in 2013, 13% for the artist, and 30% for the label. Again 57% for distribution.
      http://www.bbc.com/news/magazine-23840744

      but CD sales were going down, Artists needed a way to make make money, and internet sale took over. .Apple propose a 70% revenu for label and artist, a Big step compare to CD, with only 30% for distribution, but with the fact you did not had to buy the whole album. Something buyers where complaining about and it did help bring back revenu to music.

      Now Internet sale are going down again. Artist need a way to make more money, streaming service is now the new revenu “Stream”. Ok, True, Artist does not need Apple, but look at Apple revenu in 2014, 11% of revenu where from itunes store(music video rental) AND AppStore etc which is not much.
      http://www.macrumors.com/2014/10/20/apple-earnings-fiscal-2014/

      iPod sale are down, and soon it won’t exist anymore. Why: because people spend more time playing with app than listening to music, Apple does not need Artist anymore to sell iPod, it need App to sell iPad and iPhone. So to me discussion is not over. Apple has been a protector of content producer for years. Even now, Apple could have settle for the same price as the other streaming service but decide to go further. If Apple stop itunes music store and music steaming service I wonder who would be the biggest loser, Apple or Artist.

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Avatar for Ben Lovejoy Ben Lovejoy

Ben Lovejoy is a British technology writer and EU Editor for 9to5Mac. He’s known for his op-eds and diary pieces, exploring his experience of Apple products over time, for a more rounded review. He also writes fiction, with two technothriller novels, a couple of SF shorts and a rom-com!


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