Apple is eyeing a piece of thatÂ sweet, sweet royalty reduction pie. Just like Spotify got two months ago.
In a strong push towards their long-planned IPO, Spotify recently signed two massive multi-year deals. Â In exchange for a two-week album delay option on certain albums, UMG and Merlin would trim their royalty rates. Â Now, Apple wants in, according to new reports.
First reported by Bloomberg, Apple has re-initiated negotiation talks with major recording labels. Â Labelsâ€™ deals with the Cupertino tech giant will expire at the end of June. Â This includes deals with the â€˜big threeâ€™: Universal Music Group, Warner Music Group, and Sony Music Entertainment.
As part of its negotiations, Apple has sought to reduce royalty payments owed to labels. Â The talks deal specifically with Apple Musicâ€™s catalog.
As part of their original deals with the big three, Apple vowed to keep less money than rival Spotify. Â Since its debut in June 2015, the Cupertino-based company has added 27 million paid streaming subscribers. Â Spotify has recently surpassed 50 million paid subscribers and counts over 140 million active users. Â Should negotiation talks fall through, the original deals with the big three would most likely be extended.
Under the current deal, labels receive 58% of revenue from the music streaming serviceâ€™s subscribers. Â In recent negotiation talks, Spotify reduced its rates from 55% to 52%. Â Spotifyâ€™s royalty reductions agreement includes guarantees on subscriber growth.
According to sources close to the company, Apple wants the big three to match royalty payment cuts similar to Spotify. Â The tech giant had originally taken less revenue to quickly grow its fledging music service. Â It also paid out more to soften labelsâ€™ concerns that it would do away with iTunes, a strong source of revenue.
Thanks to the rise of music streaming, digital downloads have fallen. However, according to the RIAA, they still make up 24% of all music revenue here in the States.
Sources close to the talks said the big three may lower their rates under several conditions. Â The Cupertino tech giant would have to â€œexpand subscriber rolls,â€ among other requirements. Â In the case of Spotify, one condition was a promise to â€˜windowâ€™ certain releases, with premium subscribers having initial access. Â That doesnâ€™t apply to Apple Music, which is paid-only outside of a three-month free trial.
So far, Spotify has only managed to lower their royalty payments with UMG. Â They reportedly remain in negotiation talks with Warner Music. Â The Swedish streamer has yet to initiate negotiations with Sony Music. Â Unlike rival Apple, Spotify has yet to post a profit.