updated 11:44 pm EDT, Wed June 26, 2013
Deal said to be better than terms offered by competitor Pandora
A new report in the Wall Street Journal details the offer Apple is making to independent labels for its iTunes Radio service, one that is said to be nearly identical to the deal reached with the major labels. Under the terms of the agreement, Apple would pay a slightly more generous rate on songs streamed on the service than is currently paid by its main streaming competitor, Pandora. The latter company is actually seeking to cut the rate it pays for songs, claiming it cannot make a profit on its current 12 cents per 100 streams rate.
Apple's deal offers labels 13 cents per 100 streams (0.13 cents per listen), unless the listener skips the song within the first 20 seconds, up to two times per hour (this does not effect how often users can skip songs). The rate goes up to 14 cents per 100 streams in the second year. According to earlier unsourced reports, Apple had originally offered labels half the rate Pandora was paying.
In addition, Apple offers a percentage of ad revenue: 15 percent of net advertising (proportionate to the label's overall share of the music on the service) in the first year, going up to 19 percent in the second year. Apple is also paying nearly twice as much in royalties than Pandora's free service, though it gets some exemptions for songs already in a user's library or part of the company's "Heat Seeker" promotions. Pandora has come in for some criticism over its plan to ask artists to support a lowering of the rate it pays for streaming music, as well as its recent purchase of a radio station in North Dakota in an attempt to qualify for lower "traditional radio" online streaming rates.
While revenue from advertising profits may not amount to much in the first year of Apple's iTunes Radio operation compared to Pandora, the latter service doesn't share advertising revenue -- and while both service offer the opportunity to buy songs heard on the streaming service, Pandora just takes a reseller percentage of the sale, which comes from iTunes. Under iTunes Radio, the sale would be direct -- and likely to make more money for both Apple and the record labels. The service is also expected to help boost sales of iPhone, iPod touch and iPad devices.
Interestingly, the agreement with labels from Apple also includes references to coverage for any original programming Apple may choose to put on the service, such as news bulletins, weather updates or other topics. While the agreement basically gives Apple the right to use snippets of songs in such segments without paying a royalty, the most surprising thing about the clause is that it is there at all: Apple has traditionally shied away from creating any of its own original programming, apart from a handful of podcasts covering keynote speeches and tips for Apple device users.