Apple Music Royalties During Free Trial May be Lower Than Expected

[HobeSoundDarryl]

I'll give you credit for all the calculation work done previous to this last paragraph. But it all comes down to what's left AFTER paying the 71% to the labels/songwriters, the server costs, the bandwidth, managing the store, marketing (Ohhh the marketing). The costs of streaming a song again and again HAS to be more than a customer downloading it once. I would be surprised if there's more than 5% margin and wouldn't be surprised if it's negative. So this understanding is what gets me so miffed, that the artists and the people who point the finger at Apple like THEY are making out like bandits. It's the LABELS with their 58% cut. Artists only have themselves to blame for signing deals with those devils, which has been well documented for the 50 years preceding iTunes.

Why does Apple want to allocate all that "expensive infrastructure, bandwidth, management of the store, marketing, etc" for only 5% margin or less? What's the point of all that if it's as heavy and costly as we keep spinning around here?

I did that math to show how it could be interesting to Apple, a company where sales success of a new line is usually measured in billions (with a B). If only 5% of Apple's 28% is the profit, let's run the same math again. Was I too ambitious for Apple to woo more subscribers than Spotify? If not, 25 million paying subscribers at $2.80 per month times 12 months = $840 million PER YEAR. That's not quite a billion but a pretty juicy revenue number for being a new cut of Spotify. But if we want to believe that less than or maybe only 5% of that is their profit, they are enduring all that burdensome cost & infrastructure for about a $40 million (with an M) profit? Why bother? If that's true, why not just roll out Lightning 2 and sell us much greater than >$40 million worth of high-profit cables, with no servers, bandwidth, store managers, marketing and relatively little infrastructure?

I think our speculation about the enormous cost structure of Apple Music service is basically calling Apple stupid. They had to be smart enough to estimate what's in it for them. Why bother at up to $40 million in annual profit if it take such huge costs to eek out such a relatively small profit?

OR, assuming Apple is not stupid, I just can't accept that Apple's net would be that low. I offer that we are far over-estimating the cost to help rationalize our stance against paying the Artists during the free trial... something that Apple has already decided it WANTS TO DO now. So what are we trying to wish here? That Apple will reverse their reverse?

 

[tasset]

Why does Apple want to allocate all that "expensive infrastructure, bandwidth, management of the store, marketing, etc" for only 5% margin or less? What's the point of all that if it's as heavy and costly as we keep spinning around here?

I did that math to show how it could be interesting to Apple, a company where sales success of a new line is usually measured in billions (with a B). If only 5% of Apple's 28% is the profit, let's run the same math again. Was I too ambitious for Apple to woo more subscribers than Spotify? If not, 25 million paying subscribers at $2.80 per month times 12 months = $840 million PER YEAR. That's not quite a billion but a pretty juicy revenue number for being a new cut of Spotify. But if we want to believe that less than or maybe only 5% of that is their profit, they are enduring all that burdensome cost & infrastructure for about a $40 million (with an M) profit? Why bother? If that's true, why not just roll out Lightning 2 and sell us much greater than >$40 million worth of high-profit cables?

I think our speculation about the enormous cost structure of Apple Music service is basically calling Apple stupid. They had to be smart enough to estimate what's in it for them. Why bother at $40 million in annual profit?

OR, assuming Apple is not stupid, I just can't accept that Apple's net would be that low. I offer that we are far over-estimating the cost to help rationalize our stance against paying the Artists during the free trial... something that Apple has already decided it WANTS TO DO now. So what are we trying to wish here? That Apple will reverse their reverse?

Because at Cook put it once, "not everything is about the bloody ROI." I'm not a koolaid drinker mind you, I know how Apple bends the customer over to make unimaginable margins off cables, and cases, and watch bands. They earn that reputation. But I really believe them when they say are spending money on solar farms and iTunes Festivals, and in this case, giving music artists a viable platform that Apple isn't receiving their normal margins. I believe Apple is using music service to strengthen their image, brand recognition that in turns to customers to buying higher margin items. I'm not one of them as I loathe the entertainment industries. But I do work for a company that spends boatloads on marketing that I deem as a pure waste of capital, but the numbers bear out it drives customer loyalty.

 

[HobeSoundDarryl]

OK, then if "not everything is about the bloody ROI" why are we so hung up on throwing the mostly starving artists a bone during a 3-month trial period? Why do we have 2000+ posts, most of which are pounding away at the great ripoff of Apple in paying the artists during the free trial? I think if this is about being a good citizen on par with "save the earth" thrusts and similar, why can't we celebrate that the starving artists might actually get taken care of here?

It seems like it has to be one or the other. If it's not about the profits or ROI, why are we so overwhelmingly concerned about the free trial expense? And if it is about the profits or ROI, we have to take a look at Apple's massive upside for all the spin we can cook up in infrastructure, server, store management, electricity and marketing costs.

 

[tasset]

OK, then if "not everything is about the bloody ROI" why are we so hung up on throwing the mostly starving artists a bone during a 3-month trial period? Why do we have 2000+ posts, most of which are pounding away at the great ripoff of Apple in paying the artists during the free trial? I think if this is about being a good citizen on par with "save the earth" thrusts and similar, why can't we celebrate that the starving artists might actually get taken care of here?

If I had to speculate I would say Apple wrongly assumed the minority stakeholders that are the indie labels and artists (at least comparatively to the big five labels) would see the big picture and long game for what it is and not be so threatened by the very short near term of the free trial.

 

[HobeSoundDarryl]

Those players down at that end live paycheck to paycheck. Many can't have a big picture view because they are struggling to get by today, this week, this month. They are not on par with Apple who could take a Beats-size loss on this and not even blink. Cook won't miss his rent and Cue won't struggle to pay for his car. These indy artists barely squeak by. I know some of them. They really are paycheck to paycheck.

That written, I think some can see the big picture. But they need more confidence and cash flow between now and then. Slightly more revenue in 3 months doesn't look as good if they could be evicted before they get there. And it is THEIR music. Without that music, there is NO Apple Music service. They won't be getting a 28% cut right off the top when the free trial is over. Instead they are getting a fraction of a fraction out of the 72% that Apple didn't take.

Is Apple bringing something big to the table that can benefit them? Sure. But this is fully Apple's baby here. And Apple will get the bulk of the rewards once it converts to a new revenue stream (none of these artists or labels are likely to be getting the equivalent of 28% right off the top). So not only can Apple afford to throw them a bone and not only is it the right PR thing to do for Apple's image and no only is the right thing to do as a good citizen but it even fits the situation: he who takes the bulk of the risk should get the bulk of the rewards. Apple's 28% will be the largest share of the rewards of this once it converts.

As I've shared in all 3 threads now, if we swapped out the Apple name for Samsung, Microsoft or Google, would our sentiment for those corporations and so hard against the pay-the-artists argument be just as passionate? I think not. If not, then what we're writing is not what we really believe as people but more towing one company's line (which, since that company reversed is not even the company line anymore). If we would side with the artist argument if this was a Samsung Music service scenario, we're just wishy washy, putting one Corporation above our own, genuine opinions on this matter.

 

[tasset]

We won't solve this any sooner than world peace, as we don't know the REAL numbers that all including me are speculating about. Maybe you're correct in that Apple gets the largest share of the rewards. Or maybe not, and it's the fat pigs at the top of the labels that do as is my opinion. I have been watching most of the artists I have followed since a kid in the 80's live in excess, or watch hoodrats on MTV Cribs show off their closet full of Nikes. My thoughts are skewed from that, as are yours from knowing paycheck to paycheck people in the industry.
The funny thing about all this is that it will all blow over in a week's time if it hasn't already, the music industry should hope. And they better hope this effort is tangibly successful in converting people into paying customers. Because if it's not, it will just be more of the same for a long long time which by the sounds of it is not what the music industry needs.

I also encourage anyone to read Bob Lefsetz's stuff at Lefsetz.com, terrific pieces. And struggling artists should take a big gulp, or a big shot of whiskey, as they read it.

 

[HobeSoundDarryl]

You're right, we don't have the hard numbers. But we do have 2 numbers. Apple is known to be taking 28% right off the top. That leaves 72% for everybody else. Take some percentage from that to cover all of the Independent labels and their artists not signed to the big 4 labels. I'm going to pick and number here and go with 20% for everyone not on the big 4 music labels. 72% - 20% leaves 52% for the big 4. Divide by 4. 52% / 4 = 13% each for the 4 biggest music labels.

Let's assume that one of the big 4 are bigger than the other 3. How much more can they take of the 52%? To match Apple, they have to also take 28% right off the top. To take 28% of each $1000 is $280 when 28% is taken out of the whole pot. But try to match that out of the 72% that's left for everyone not named Apple and the math really gets messy. To take $280 out of a $1000 there = 38% of the 72%. If one of the labels is going to take 38% of the 72% so they can just match Apple's cut and all of the independents are sharing in my guess of 20%, what's left for the other big 3? 72% - 38% - 20% = 14% to spread over the other big 3 labels: about 4.5% each. I just don't see that.

Instead, Apple takes the richest share with 28% right off the top, each of the big 4 take rich shares of the 72% (but not as much as Apple) and the independents get a smallish share. The artists signed to the big 4 and independents that aren't the superstars like Swift, Perry, Bieber, etc. get extraordinarily tiny slices out of those shares, which is why I've referred to them as scraps or crumbs in various posts. The artists aren't even close to being on par with Apple here.

The math just won't work to pay the "fat pig" labels more than Apple's cut. Conceptually, one of them MIGHT take as much as Apple or maybe even a bit more, but, best I know, none of the big 4 are that much more ahead of the other 3... and the independent labels are numerous and certainly worth a good slice out of the 72% themselves. Once you work the math over, it's hard to illustrate how Apple is not set up to make the most from this by far, the labels as a group eat almost all of the rest, and these artists some of us are spinning as evil, greedy, spoiled brat, crooks at dining on fractions of fractions of the 72%.

What's the point? Some of us are spinning that there's so little money in this for Apple. That's not true. Others are spinning how the artists should be equally partnering in this venture. That's impossible as that's like asking individual ants to take on an elephant (picture a team of lawyers vs. someone's cousin who is studying to be a legal aid). We seem to see this as potentially killing Apple but Apple stands to make HUGE money from this, year after year for many years to come. Even the Swifts & Biebers can't make close to what Apple will be able to make from this service... or even any one of the big 4 labels. That's actually great for Apple's business interests but hilarious against the backdrop of several thousand posts worried about the scraps that Apple is going to pay these artists for a few months of this free trial.

 

[ardent73]

Then you have lived a very sheltered life

And you have lived a very ignorant one...

 

[WissMAN]

After posting an open letter to Apple on her Tumblr page about Apple's free streaming policy for its upcoming music service, popular artist Taylor Swift managed to get the company to change course -- Apple now planning to pay artist royalties during its three-month free trial period of Apple Music. But, thanks to a new statement provided to The Wall Street Journal, it appears artists' satisfaction with the policy change could become turbulent again, with the Cupertino-based company suggesting the royalty rate during the free trial period will be somewhat lower than normal.

Attempting to ballpark Apple's possible payment rate for the free trial, The Wall Street Journal compares the Apple service to Spotify's free, ad-supported option, which they point out pays royalties of "about one-fifth of the subscription service." Last December, that was essentially 0.14 of a cent for each listen in the United States, which Spotify had to pay a grand total of $5.8 million for its free tier alone for the month.

If Apple goes in under its traditional 71.5 percent revenue sharing policy -- which is likely to happen given the wording used when speaking to the WSJ -- it could still end up paying out millions of dollars to the various artists, songwriters, and producers that Swift became the defacto figurehead of after Apple listened to her letter over the weekend.

Although, as the WSJ points out, some in the industry appeared content with the original free trial period policy, given Apple's promise of an above-industry standard of 71.5 percent royalty payment, compared to the basic 70 percent payed out by competitors such as Spotify and Google. Apple has yet to comment any further on the issue, but its shifting viewpoint on the topic, so close to Apple Music's launch, is undeniably an impressive feat for Swift.

Article Link: Apple Music Royalties During Free Trial May be Lower Than Expected

What happened again? The artist were getting no money (and still get no money) for three months and then will start getting money post three months (on top of money they were not getting previously) very confusing!

 

[iansilv]

There's a difference with the Apple Music free trial — it will be the first three months from the day that the service goes active, not three months from the day when a person signs up for the service. That's a big difference. If you don't use the service during the first three months, there will be no free trial for you afterwards.

I still think the artists are biting the hand that feeds them. If they are not happy with the free trial, don't include their music. It's not _really_ costing them anything to include their music for free with Apple Music, is it? It's silly to claim that they will suffer if their music is played for free on Apple Music. I understand the royalty argument, but I don't agree that the free trial would harm anyone.

Ooooooooooooohhhhhhhhh....... I get it now.

 

[shinji]

Because at Cook put it once, "not everything is about the bloody ROI." I'm not a koolaid drinker mind you, I know how Apple bends the customer over to make unimaginable margins off cables, and cases, and watch bands. They earn that reputation. But I really believe them when they say are spending money on solar farms and iTunes Festivals, and in this case, giving music artists a viable platform that Apple isn't receiving their normal margins. I believe Apple is using music service to strengthen their image, brand recognition that in turns to customers to buying higher margin items. I'm not one of them as I loathe the entertainment industries. But I do work for a company that spends boatloads on marketing that I deem as a pure waste of capital, but the numbers bear out it drives customer loyalty.

It's more about winning the digital music game at all costs, and as you point out, the halo effect.

 

[Benjamin Frost]

In all this talk of royalties and artists making or not making money, maybe this is a good time to also talk about the length of copyrights?

Artists today own their copyright for their entire lives, plus 70 years; or 95 years if it was a work for hire. This is far far too long, and deprives the public of what should be theirs. It is not uncommon today for a grandchild to me receiving royalty payments for their long-dead grandmother's work.

It should be something sensible like 40 years, enough time to earn a profit, and then give it up to the public domain. A shorter term would incentivize monetizing it faster, and would encourage artists charge more for their work upfront.

Why even measure copyright by the length of a life? It's such an anachronistic way to measure lengths of time. Is a 70-year-old's song worth less than a 15-year-old's song?

I disagree.

Copyright should be for at least the lifetime of the composer. I think lifetime plus 70 years is a good length. It covers the composer's lifetime plus one extra generation, which seems fair.

 

[Benjamin Frost]

Unfortunately that's not far off what supermarkets actually do. Ok, they wouldn't expect their suppliers to give them free Kit Kats but they would pay them a hell of a lot less. This is basically the crux of the whole supermarkets vs farmers milk pricing thing. The whole reason why supermarkets are a 'thing' and are so successful is their buying power. The supermarkets basically say "We're going to buy your milk at X price. If you don't say yes, we'll take our huge contract that takes up all of your business and go elsewhere".

Indeed.

And milk, in the UK at least, is so underpriced.

We need a food revolution in which farmers are paid a fair price and the quality of farming goes up.

 

[gnipgnop]

Why is it so hard to understand that Apple is actually doing a HUGE service to the music industry by trying to get people hooked on a PAID subscription model instead of having them listen to "free" services like Spotify that pay a pittance?

The problem with that argument is that if you really believe that the service is going to be a HUGE service to the music industry, then what's the issue with paying out the royalties? HUGE would mean that Apple is going to benefit in a significant way and will easily recoup any cost of subsidizing the free trial.

At the end of the day, it's business. Apple is in business. The artists are in business. Neither one can claim that the other doesn't deserve to get paid for what makes them money. Apple makes money from hardware. The artists make money from the performance of their music, either recorded or live.

 

[flavell]

Why are we listening to the WSJ, where Mac is crap because it isn't IBM? The iPad will never catch on....the iPhone is a fad..... and blah, blah, Republican-right-wing-corporate blah.

 

[oneMadRssn]

I disagree.

Copyright should be for at least the lifetime of the composer. I think lifetime plus 70 years is a good length. It covers the composer's lifetime plus one extra generation, which seems fair.

Lifetimes are an absurd way to measure lengths of time for a legal right; an anachronism leftover from the English middle ages when calendars weren't very accurate and only farmers cared about what time of year it was.

Imagine an artist that made a masterpiece and dies the very next day. His estate had 70 years to monetize the work before it enters the public domain. Another artist is a child prodigy that at age 12 made an equally impressive and marketable masterpiece, and also happens to have good genes and lots of luck and lives to be 97 years old. His estate, including the time he was alive, had 155 years to monetize the work. One is more than double than the other. How is this just?

What we're talking about is a severable right that covers the work, not the artist. Further, effort and impressiveness of the underlying work don't matter, the Courts and legislature have many times rejected the idea of "sweat of the brow" having any impact on copyright. Does one work deserve more protection than the other just by virtue of luck and fortunate timing?

People seem to hate Patents terms here, often saying software Patents shouldn't last more than 5 years or something. How would they feel if Patent terms were based on the life of an inventor? Both are the broad right to exclude.

 

[NATO]

It's Apple's decision to have a free trial, not the artist's, so why doesn't Apple deal with it? If Tesco gives you free Kit Kats as part of a promotion, then they don't automatically expect Kit Kat to give them for free to Tesco. If you get a free 1 month trial of Photoshop, that doesn't mean the developers don't get paid for a month, it means Adobe figures it out from their own stock of money.

Here's the thing, in a LOT of cases where special offers are run in Tesco, it's not actually Tesco who are aborbing that loss, it's usually imposed on the supplier. Just an FYI.

 

[Tycho24]

I disagree.

Copyright should be for at least the lifetime of the composer. I think lifetime plus 70 years is a good length. It covers the composer's lifetime plus one extra generation, which seems fair.

A generation is 25 years, NOT 70.
A period of 140 years, as you are discussing, for copyright is ludicrous. It's almost six generations... & would render the material useless. Can you think of a lot of intellectual property people are enjoying now that are over 140 years old?? At that point, it being copyrighted for 140 years or 1,400 years becomes inconsequential, as it is USELESS.

 

[Tycho24]

The problem with that argument is that if you really believe that the service is going to be a HUGE service to the music industry, then what's the issue with paying out the royalties? HUGE would mean that Apple is going to benefit in a significant way and will easily recoup any cost of subsidizing the free trial.

At the end of the day, it's business. Apple is in business. The artists are in business. Neither one can claim that the other doesn't deserve to get paid for what makes them money. Apple makes money from hardware. The artists make money from the performance of their music, either recorded or live.

Because the HUGE clear winner here is the labels. They stand to have a significant new revenue stream. Apple created it & did 100% of the work. The labels do LITERALLY nothing but sign a form one time, then reap money forever. Sooooooooooo, you have an argument why Apple should pay the artists during the trial period, rather than the labels?
I can't think of one.....
Wait. Thought of one! Maybe the labels (as has been pretty well known for over 50 years) are manipulative scumbags, out to take every single penny from the artists that they possibly can, & don't really care about "the industry", "the artists", or anything at all but lining their pockets RIGHT NOW in the sleaziest way possible.
Record labels are essentially legal "pimps" for the artists.

 

[Benjamin Frost]

A generation is 25 years, NOT 70.
A period of 140 years, as you are discussing, for copyright is ludicrous. It's almost six generations... & would render the material useless. Can you think of a lot of intellectual property people are enjoying now that are over 140 years old?? At that point, it being copyrighted for 140 years or 1,400 years becomes inconsequential, as it is USELESS.

I think life plus 70 years is generous.

Why shouldn’t copyright last forever? A family generally doesn't die with the composer. It seems reasonable for copyright to last for as long as the composer's family lives.

The current situation is generous, in that it ends after a prescribed time.

 

[leroypants]

Because the HUGE clear winner here is the labels. They stand to have a significant new revenue stream. Apple created it & did 100% of the work. The labels do LITERALLY nothing but sign a form one time, then reap money forever. Sooooooooooo, you have an argument why Apple should pay the artists during the trial period, rather than the labels?
I can't think of one.....
Wait. Thought of one! Maybe the labels (as has been pretty well known for over 50 years) are manipulative scumbags, out to take every single penny from the artists that they possibly can, & don't really care about "the industry", "the artists", or anything at all but lining their pockets RIGHT NOW in the sleaziest way possible.
Record labels are essentially legal "pimps" for the artists.

No kidding the Labels did absolutely nothing, well other than provide all of the content for the service.

How much content Apple would have without the Labels?

I don't know the answer, maybe you do, how many how many record albums has Apple produced?

 

[Tycho24]

No kidding the Labels did absolutely nothing, well other than provide all of the content for the service.

How much content Apple would have without the Labels?

I don't know the answer, maybe you do, how many how many record albums has Apple produced?

Derp de derp....
I know you THINK you're being cute or clever, but you're not.
YES, we know that the labels own the music & thus, wield the power (fair or not). Your comment in no way negates the fact that- they are sitting on their arses, simply "owning it". They are not coming up with clever new distribution models, they are not trying to shake up & revolutionize the industry... they are doing literally NOTHING but let others toil for their profit... 1st the artists, now the streaming companies. I wish there was a way to get the musicians contracts that say the labels only have rights to profit from owned versions of their music, then Apple & others could put streaming revenue straight in their deserving pockets & not filter them scraps through the nearly worthless labels.

 

[iFanaddic]

Thread started

 

[Michael Goff]

No kidding the Labels did absolutely nothing, well other than provide all of the content for the service.

How much content Apple would have without the Labels?

I don't know the answer, maybe you do, how many how many record albums has Apple produced?

I thought the artists made the music. >_>