Apple Seeks Lower Revenue Cut to Record Labels

Apple Inc. is seeking for a lower revenue share that record labels get from streaming music, as part of the negotiations for Apple Music and iTunes. Other streaming services, like Spotify, made similar decisions as the streaming business grows, according to a report.

The negotiations include Apple’s agreement for Apple Music, the two-year-old streaming service providing millions of songs on demand, and iTunes, the store where people can buy individual songs or albums.

It has been about two years since Apple Music made its debut to take on well-known streaming giants, like  Soundcloud and Spotify.

In addition, its existing deal with record labels will expire at the end of June, but deals can be extended if the two parties cannot agree on new terms  by then, based on the report released. This means the music from your favorite artists will not vanish from the platform, thus an extension to uphold music and revenue streams alike. This is because Apple has maintained more cordial terms with record labels as opposed to other streaming platforms such as Spotify and YouTube. The two have rarely made their regressions public.

This change that Apple is trying to make this time could potentially affect its relationship with record labels. However, this is debatable and depends on how open they are to change in their streaming-based revenue stream. This Apple’s reported move is said to be part of its efforts to revise its over-all relationships with the music industry.

Streaming services are continuously growing unfavorably to revenue gains, which is why they are cutting revenue for record labels. Labels are for the most part forbearing, because of the promise of continued audience growth on streaming platforms. For Apple, the greatest task is making sure that growth in the Apple Music won’t affect iTunes, which is more widely accessed in other markets.

Currently, Apple pays out some of the highest royalty rates with record labels receiving 58% of revenue from Apple Music subscribers, but it wants a deal closer to what Spotify recently negotiated.

Spotify, the largest paid music-streaming service in the world, reduced its rate to 52% from 55% in recent negotiations with labels, tied to certain guarantees on subscriber growth. However, the labels are open to a reduction in Apple’s rate, provided that it is also able to expand subscriber rolls and meet other requirements, including the promotion of iTunes in countries like Germany and Japan, where most music is still purchased rather than streamed.

Subscriptions were the biggest money maker at $2.3 billion, and they basically doubled from a year earlier.

Apple Music has seen steady growth since its 2015 introduction which may give Apple an advantage when negotiating new deals with labels. As of June 2017, Apple Music has 27 million paying subscribers, up from 20 million in December of 2016.

The record labels are expected to eventually accept the licensing deal, which is still better than Spotify’s, as they are now aware of the success of these streaming platforms. It is now also more optimistic about the future health of their industry, which grew 5.9% last year worldwide, thanks to paid streaming services, Spotify and Apple Music.

Meanwhile, YouTube just resigned a revenue share agreement with music creators. Taylor Swift just joined Spotify after 2-years of refusing streaming.

By 4:53 AM GMT-4, Apple traded 0.59%, or 0.86 points, to $145.87. It opened in $145.52, with a session high of $146.07, and a session low of $144.61. Its market capitalization was $753.63 billion, its P/E ratio was 17.06, and its dividend yield was 1.73%.

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