Music Business, News — June 18, 2015 at 1:21 pm

Indie labels revolt over royalty row with Apple

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apple-music2Mere days before Apple’s new streaming service is due to launch (on 30 June) a number of independent music labels have voiced their concerns about the licensing terms. Under the terms proposed by Apple, artists and labels would receive no royalties during the three-month free trail period users enjoy when they first sign up for the service – and they’re not happy about it.

 

Whilst all of the major record labels have signed a licensing deal for Apple’s new streaming service, independent labels are challenging the fairness of Apple’s agreement. An independent record executive spoke to Music Business Worldwide, saying “we’re used to helping with free trials when streaming services are not established. But this is Apple, with hundreds of millions of customer credit card details. Offering no compensation at all to labels for a trial that will help Apple sell its devices is hugely disappointing.”

 

Andy Heath, chairman of industry lobbying group UK Music told The Telegraph that the terms proposed by Apple will ‘literally put people out of business’ and at this point no British independent labels have agreed to Apple’s terms. The sentiment is echoed in the United States.  “I hesitate to say ‘everyone,’ but a lot of independent labels are of the same mind — that it’s kind of a raw deal,” a source at a top indie label tells Rolling Stone. “There definitely seems to be a coalescing of opinions to opt out.”

 

To be clear, when we talk about independent labels, we’re not talking about small outfits, operating out of someone’s basement, pasting stickers onto vinyl and begging music retailers to stock their product. These are labels with significant industry clout, hosting artists such as Adele, Alabama Shakes, Arctic Monkeys, The Prodigy and The XX. Without these labels getting on board, Apple is likely to have an enormous gap in their catalogue at launch. With a huge number of consumers already having embraced streaming services, this makes luring customers away from existing services like Spotify, Deezer and RDIO a significantly more difficult proposition.

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With less than two weeks until launch, it’s left Apple scrambling for options but each individual party appears to be in the middle of a standoff. Either Apple will renegotiate the terms of the licensing agreement with labels individually or risk running some significant gaps in Apple Music’s catalog. Both have a lot to lose.

 

There is of course another way this can play out. Independents not keen to forsake three months worth of revenue can opt out of the arrangement and sign the agreement once three months has passed since launch. A spokesman for the American Association for Independent Music expressed this point eloquently. “Since a sizable percentage of Apple’s most voracious music consumers are likely to initiate their free trials at launch, we are struggling to understand why rights holders would authorize their content on the service before October 1st,” the association wrote. “Please do not feel rushed to sign Apple’s current offer.”

 

While many of the labels involved have arrangement with alternate streaming services like Spotify, it’s clear why Apple Music is a concern to them: iTunes has remained a consistent source of revenue and the new service will sit beside it. A three month free trial could mean a black hole in music industry income for the year.

 

A lot can happen in two weeks but right now Apple seems to have a serious revolt on its hands. Then again, it certainly has the cash reserves to solve it.