Apple Music Royalties During Free Trial May be Lower Than Expected

[beanbaguk]

This is nothing but corporate greed on the part of Apple and absolutely disgusting with the amount of capital they have to do this.

It just portrays Apple in an unnecessarily bad light.

I'm even considering boycotting the new product and continue with Spotify. As many have said, if Apple chooses to to give a free trial, surely they have to stump up the cost of it. Why should the artists!?!?!?!

 

[HobeSoundDarryl]

18 Million over 3 months is nickel and diming (based on Spotify cost) ? Even for Apple it's a lot and will affect the earnings report.

Here's the math:
Let X = number of paying subscribers likely to retain the service beyond the trial. Pick your number for X. Hints: Spotify apparently has 20 Million paying subscribers now. Will Apple do better or worse than Spotify after 3 months?

We already know that AFTER the trial, Apple's cut will be about 28%. On a $10/month service, that's $2.80/month per paying user.

Let R = X times $2.80. R will be how much new revenue Apple makes per month if our guess at X is right, none of which is contributing to the earnings report now.

Compare R to that $18 Million number. Depending on what you chose for X, is R after ONE month greater or less than the $18 million?
-If R > $18 Million and $18 Million is the actual cost, the earnings report will show a positive in spite of the trial after only 1 month of normal operations. In subsequent months, there is no $18 Million to recoup again. And this service is meant to carry on for up to indefinitely.
-If R < $18 Million, roll with another month and compare R times 2 (months) to $18 Million. If that (R * 2) is still less than $18 Million, add another month (R * 3) and repeat. If you have to go much further than about 3 months, why in the world do you think Apple is messing around with this very low revenue business? That would be so unlike Apple. In other words, increase your guess for X or proclaim Apple a fool for getting into a pitifully low-revenue business.

The point is that unless we assume relatively miserable failure by Apple to woo paying subscribers, 28% right off the top will easily recoup a number like $18 million with just the passage of (a little) time.

Another view of the same basic question: how many do we need in X to recoup $18 million in ONE single month?

$18 million / $2.80 = approx. 6.4 million paying subscribers. To fail to accumulate less than 1/3rd of what Spotify has in paying subscribers now seems highly unlikely. This is Apple we're talking about. Note that one great advantage Apple will have over Spotify is that Apple plans to embed Music as the default in iOS9. So, much like Internet Explorer killed Netscape when Microsoft embedded it in Windows, I'd think Music will crush Spotify.

My own guess for X? 25 million, just 5 million more than Spotify has now. If I guess right, 25 million times $2.80 per month = new monthly revenue of approx. $70 Million PER MONTH, or new annual revenues of $840 Million PER YEAR. That doesn't include the added hardware sales lift that such an offering is supposed to add to the sales of iDevices & Macs, which should be something of size. Isn't greater hardware sales supposed to be what this kind of software thing is actually about?

Now, my revenue guess or your revenue guess is not profit, and there will certainly be some costs that can be directly assigned to this service. But we all know Apple wouldn't be messing around with this if their forecasted profit margin was not juicy. If we sling the R&D & infrastructure argument to try to marginalize Apple's take right off the top such that it sounds like only $18 Million could adversely affect their earnings statement, why is Apple bothering with this service?

 

[Infinite Vortex]

From what I understand there's no limit to the number Apple IDs and hence iTunes Music Store accounts (I'm making it distinct to iCloud accounts where any one device can only create 5) I can make, so if I'm not limited to how many email accounts I can create I can be in a trial period until the end of time and only have to change an email address 4 times a year. I'm sure this is not lost on Apple.

So if Apple claims to support music artists and wants to kudos for paying them a higher royalty on subscriptions shouldn't Apple put in place the environment where artists actually get paid rather than having an excessive trial period that's only bound by 5 minutes each 3 months to create a new iTMS account?

Even if the trial was more limited to iCloud accounts I figure I can spend a little effort with my Mac/iOS devices (most of them can create either 4 or 5 iCloud accounts) and listen to the service for around 14 years before I need to fork out a penny to an artist. This is just plain WRONG!

PS Sort of makes me glad I've already given Taylor Swift some coin by buying 1989… on Google Play.

 

[doelcm82]

First the U2 album and then this? Am I the only one who thinks that Apple are messing with karma and their overall positive reputation?

I have bought a lot of Apple products/apps/phones etc. over the years - but I'm beginning to feel that they are pushing it.

Agreed. Apple needs to stop giving away stuff. People hate free stuff.

 

[applesith]

Well don't offer it as a free trial then.

Don't expect as many customers to sign up without a free trial then.

 

[Arndroid]

This was obviously the case from the beginning.

 

[Arndroid]

Somebody ran the numbers on this deal and it takes 8 years for an artist to recoup the benefits. Just pay the royalties Apple.

Yeah the person who ran the numbers failed basic math. Stop quoting that.

 

[Arndroid]

All

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.

all bad examples. Business partnerships to offer discounted or free trials are quite common.

 

[R3k]

Not the same thing. If apple were giving away physical goods, i.e. cds, records or tapes then your argument would hold some weight as the physical goods need to be manufactured. No one is working for free in the music streaming rights. The songs have already been made and no physical goods are being given away.

Then you have lived a very sheltered life

Nah, you're the one with the very narrow view here. Tangible or intangible etc

 

[Arndroid]

Seriously though- I don't understand the three month trial- you can test it out in a week- why the long free trial?

Because three months is much more likely to get someone to actually use the trial in the first place and in return likely to see a higher subscription conversion rate.

People are gun shy of one month trials these days because too often it is just a way to hope you forget in two weeks and get billed.

Three months appeals as more of a value and more enticing and also puts less pressure on the consumer to feel like they have to decide right away.

It is very likely three months gains a significantly higher number of trial subscribers which leads to an obviously larger raw number of subscribers. However I also suspect the conversion rate to subscriptions from a three month trial will be higher than a one month trial.

It is funny how people will defend spotify' crappy ad supported tier which pays artists very little and can last forever compared to a limited time offer.

 

[friedmud]

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.

I wish people would quit coming up with BS analogies that don't work. Let me try to "fix" your Tesco hypothetical...

It would be more like Tesco coming up with a Kit Kat subscription service. Getting millions of people to sign up for such a service would obviously GREATLY increase the total sales of Kit Kats. Therefore it's not unreasonable to see if Kit Kat would sponsor a free trial period to get people hooked on the service by providing all of the Kit Kats during that trial period.

At the end of the trial period Tesco will begin paying for all Kit Kats (giving Kit Kat a reliable and increased revenue stream from what it had before) and Tesco will take a bit off the top.

In this situation Tesco is not "damaging" or hurting Kit Kat at all... they are PARTNERING with Kit Kat to unveil a new service that will be mutually beneficial. Tesco is going to market the hell out of this new service and bring in many new consumers that will be paying every month for Kit Kats they probably wouldn't have paid for otherwise.

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? Apple gets the benefit of a nice ecosystem and a little off the top... the artists get a strong PAYING subscriber base that keeps money rolling in. BOTH of them (Apple and the artists) don't make any money in the beginning as a way to bring in new people... seems fair to me.

 

[iVoid]

It's not rocket science. They should get the same percentage during the free trial as the do during the paid subscriptions.

And 71.5% of free is $0.00.

 

[coolfactor]

Seriously though- I don't understand the three month trial- you can test it out in a week- why the long free trial?

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.

 

[Mactendo]

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.

Apple was clear about that trial and nobody forces poor artists to participate if they find this not a fair deal. It's simple.

If it's a partnership then both parties should invest something. Apple invest huge money to build the service and artists could invest their songs for the free trial. If Apple Music succeeds then artists and Apple will win huge money. If it doesn't succeed then both will lose. But instead artists want to win and be paid in any case.

 

[BCWorld]

Lol! Low pay = still free! Classic apple. Lol

 

[DoubleWah]

Seems to me that it would be crazy for Apple to agree to pay out the same amount for the trial period as for the paid period, simply because almost everyone might decide to try Apple Music out just to see what it's like (even if they had no intention of staying with the service after three months).

Apple has, what, about 800 million customers. If Apple paid 71.5% on three months of service at the full paid-for rate to the labels, that would be 800 million x $29.97 x 71.5%. That's over $17 BILLION. To put it in perspective, that's more than the entire global music industry made in the whole of last year.

It's great that they are going to pay something, and I hope it's a good enough offer to attract the Indies. The opportunity for the music industry to do well on the back of this is pretty significant *if* the trial period make people want to stay with the service. One in five customers subscribing would double the music industry's revenue from digital sales globally.

Simon

 

[MarkNY]

Does anyone think artists should get the full rate during the trial period? If so, I'm astounded. It would simply be a massive giveaway from Apple shareholders to musicians. "Subscribers" will sign up for the free trial with no intention of ever being a paid customer. Usage may well be multiples of what it will be later. It'd be a three month gold mine for artists at the expense of Apple. If Apple gets stuck with that bill, offering a free trial would lunacy on Apple's part.

 

[McScooby]

So, just so i get this right, AppleMusic allows you to stream all content that is available on the iTunes Store?

 

[WrQth]

...except Apple is a huge player in the music sales game, and gets massive publicity. Millions of people are going to sign up for the free trial and, for at least 3 months, they're not going to buy anything new while they can browse Apple Music for free. Its quite possible that this will cause a very noticeable dip in all music sales for a few months. Opting out of the trial won't protect you from a sales dip - and will reduce your chances of reaping benefits when the trial ends.

The problem won't be for the big boys/girls with healthy cashflow situations (I'm sure Ms Swift will be OK) but there could well be some small, independent publishers who can't cope with 3 months of famine.

When the trial period is over, either people will just go back to their usual buying habits or Apple Music may well turn into a lucrative new source of income - which will be no help if the bank forecloses on you 2 months into the trial.

Also, anybody with a new release/tour/promotion scheduled during the trial could be royally stuffed: the peak sales for your new masterpiece, when you're doing all your publicity and promotion and it is the latest shiny new thing, will be mopped up by people listening to it for free.

Being an artist isn't supposed to be easy or they'd never have material to be artistic with

 

[philoscoffee]

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.

Actually, they do. Many deals with major retail outlets, such as BOGOF (buy-one-get-one-free) promotions, result in lower payments to the manufacturers who gamble on their bringing in higher sales. That said, I think Apple should be the one to absorb the cost here, especially given the historically low royalty rates that artists are paid compared to what the record company receives.

 

[Sincci]

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.

It has been confirmed pretty much everywhere that the trial really starts when the user signs up and not when the service goes live.

 

[Michael Goff]

So, just so i get this right, AppleMusic allows you to stream all content that is available on the iTunes Store?

No, artists have to agree to allow streaming.

 

[tasset]

Now, my revenue guess or your revenue guess is not profit, and there will certainly be some costs that can be directly assigned to this service. But we all know Apple wouldn't be messing around with this if their forecasted profit margin was not juicy. If we sling the R&D & infrastructure argument to try to marginalize Apple's take right off the top such that it sounds like only $18 Million could adversely affect their earnings statement, why is Apple bothering with this service?

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.

 

[wkadamsjr]

A lower percentage doesn't necessarily mean less total money. Consider there will be thousands more people using the service just because it's a free trial, even though they never intend to pay for the service.

 

[wkadamsjr]

Not the same thing. If apple were giving away physical goods, i.e. cds, records or tapes then your argument would hold some weight as the physical goods need to be manufactured. No one is working for free in the music streaming rights. The songs have already been made and no physical goods are being given away.

Within those three months, the artists and record labels will surely release new music. Apple will certainly want that music, because otherwise its service becomes irrelevant.