Apple Reportedly Offering Half of Pandora's Royalty Rate for Streaming Music Service

[crazytrain]

Interestingly, I was on a course this week where we had to look at how the music industry operates. General consensus at the end was that the streaming model currently doesn't work for either the record company or the artist. Just to clear a few things up. On a normal CD sale or album download (averaging out to 10 songs per album), the artist makes anywhere between 30c and 1$ (depending on their bargaining power with the record company. Shania Twain famously negotiated 40% royalties on one of her albums)). The record company makes roughly $1.70 profit on a CD and slightly more than this on a digital download (difficult to be precise as its usually reported as revenues, rather than profit, for this but again, the good guesstimate is in the region of $2).

So, if we take the example of Adele (ok this is an extreme example but it gives you an idea of the numbers involved), in the last two years she has sold 26 million 'albums' (mix of CD and download). That equates to about $25M in royalties for her (indeed she probably received more as she writes her own songs, but we'll keep it simple for now). That equates to roughly $50M profit for the record company. Not bad I hear you say, and I would agree. However, here comes the 'issue' for the record companies and the artists. To receive the same amount of profit in that two year timeframe, the record company would need 25 BILLION streams of Adele songs (or 2.5 billion albums if you want to keep it that way). Its worse for Adele as the artist royalties fall to about a third that the record companies get (rather than the roughly half in the CD and download systems). So Adele would need over 35 billion downloads to get the same profit.

Now, I know, we're talking huge (crazy?!) numbers here for profit, but equate this back to your Indie band, or even another 'successful' artist (Adele had the top-selling album last year at 18M copies, the second placed album was 8M copies), and you'll see that the numbers do drop off quite significantly especially outside the top 10 or 20 albums.

Another famous example is Lady Gaga - 1 million streams of 'poker face' on Spotify and she made about $160. If that had been 1 million downloads she would have made $100,000.

Again, you may not feel any sympathy for these really high earners, but think about the little guys, they just are not getting anything of any note at all from Spotify....

Sorry, very long winded post, but the take home message is that, streaming services need really massive numbers to work.

Oh, and Spotify lost $59 million in 2011 (not sure about 2012).

 

[dangcookie]

6 cents probably isn't too low, given the benefits

Music sales will go through the roof once this service goes live. I'll wager that a lot more people will use it than the current Pandora base. iTunes has always SUCKED as a music discovery engine. Truly integrated radio in iTunes will change that. There will be a huge uptick in impulse music purchases. Everyone will win.

 

[Tiger8]

Who Cares about Sales / Streaming? It's all about TOURING!

These streaming services are a threat to the Music consortia / agencies build up pre-internet days, when promoting was labor-intensive. Now indie-artists can submit content to iTunes and with streaming service from Apple earn additional income.

I have no background in music economics, but 6 c per 100 streams seems a little low. If 1,000,000 streams of your songs occur each day (which seems excessive), you earn $600/day which is $220,000/year (great!). But if that number is just 100,000 streams per day (seems decent), your earnings plummet to just $22,000/year. Hardly enough to justify/complement your labor as a musician.

What are stream numbers for non-blockbuster singers? 100-1000 streams per day? That's basically pocket change.

Very valid points, but I don't think radio royality pay is that much higher btw.

Either way, it all goes to the writer / composer of the song, not the artists who sings it unless they also co-wrote and co-composed it. More and more artists are touring because that's were the real revenue is, and in this scenario, I would imagine artists LOVING services like Pandora, not for the pennies it gets them, but for promotion which ultimately leads to more ticket sales.

I remember someone on TV was making fun of Madonna saying that her latest album flopped, but really Madonna does not care about the $9 you're going to pay her to buy an album, she cares about the $300+ ticket. Her album flopped, but her tour grossed $280+ million. GO figure.

 

[alent1234]

historically artists made most of their money touring
and for a long time record companies had to pay radio stations to play their music as advertising for people to buy the album

the whole point of the album is to get people to buy concert tickets

Interestingly, I was on a course this week where we had to look at how the music industry operates. General consensus at the end was that the streaming model currently doesn't work for either the record company or the artist. Just to clear a few things up. On a normal CD sale or album download (averaging out to 10 songs per album), the artist makes anywhere between 30c and 1$ (depending on their bargaining power with the record company. Shania Twain famously negotiated 40% royalties on one of her albums)). The record company makes roughly $1.70 profit on a CD and slightly more than this on a digital download (difficult to be precise as its usually reported as revenues, rather than profit, for this but again, the good guesstimate is in the region of $2).

So, if we take the example of Adele (ok this is an extreme example but it gives you an idea of the numbers involved), in the last two years she has sold 26 million 'albums' (mix of CD and download). That equates to about $25M in royalties for her (indeed she probably received more as she writes her own songs, but we'll keep it simple for now). That equates to roughly $50M profit for the record company. Not bad I hear you say, and I would agree. However, here comes the 'issue' for the record companies and the artists. To receive the same amount of profit in that two year timeframe, the record company would need 25 BILLION streams of Adele songs (or 2.5 billion albums if you want to keep it that way). Its worse for Adele as the artist royalties fall to about a third that the record companies get (rather than the roughly half in the CD and download systems). So Adele would need over 35 billion downloads to get the same profit.

Now, I know, we're talking huge (crazy?!) numbers here for profit, but equate this back to your Indie band, or even another 'successful' artist (Adele had the top-selling album last year at 18M copies, the second placed album was 8M copies), and you'll see that the numbers do drop off quite significantly especially outside the top 10 or 20 albums.

Another famous example is Lady Gaga - 1 million streams of 'poker face' on Spotify and she made about $160. If that had been 1 million downloads she would have made $100,000.

Again, you may not feel any sympathy for these really high earners, but think about the little guys, they just are not getting anything of any note at all from Spotify....

Sorry, very long winded post, but the take home message is that, streaming services need really massive numbers to work.

Oh, and Spotify lost $59 million in 2011 (not sure about 2012).

 

[Crzyrio]

Interestingly, I was on a course this week where we had to look at how the music industry operates. General consensus at the end was that the streaming model currently doesn't work for either the record company or the artist. Just to clear a few things up. On a normal CD sale or album download (averaging out to 10 songs per album), the artist makes anywhere between 30c and 1$ (depending on their bargaining power with the record company. Shania Twain famously negotiated 40% royalties on one of her albums)). The record company makes roughly $1.70 profit on a CD and slightly more than this on a digital download (difficult to be precise as its usually reported as revenues, rather than profit, for this but again, the good guesstimate is in the region of $2).

So, if we take the example of Adele (ok this is an extreme example but it gives you an idea of the numbers involved), in the last two years she has sold 26 million 'albums' (mix of CD and download). That equates to about $25M in royalties for her (indeed she probably received more as she writes her own songs, but we'll keep it simple for now). That equates to roughly $50M profit for the record company. Not bad I hear you say, and I would agree. However, here comes the 'issue' for the record companies and the artists. To receive the same amount of profit in that two year timeframe, the record company would need 25 BILLION streams of Adele songs (or 2.5 billion albums if you want to keep it that way). Its worse for Adele as the artist royalties fall to about a third that the record companies get (rather than the roughly half in the CD and download systems). So Adele would need over 35 billion downloads to get the same profit.

Now, I know, we're talking huge (crazy?!) numbers here for profit, but equate this back to your Indie band, or even another 'successful' artist (Adele had the top-selling album last year at 18M copies, the second placed album was 8M copies), and you'll see that the numbers do drop off quite significantly especially outside the top 10 or 20 albums.

Another famous example is Lady Gaga - 1 million streams of 'poker face' on Spotify and she made about $160. If that had been 1 million downloads she would have made $100,000.

Again, you may not feel any sympathy for these really high earners, but think about the little guys, they just are not getting anything of any note at all from Spotify....

Sorry, very long winded post, but the take home message is that, streaming services need really massive numbers to work.

Oh, and Spotify lost $59 million in 2011 (not sure about 2012).

I am not as educated as you on this current topic but I feel when it comes to streaming, it is the little guys that benefit more from it.

They get people listening to their music that would otherwise not even consider paying for a CD, especially with the digital age.

And you are comparing the first 2 years, you have to take into consideration that a streaming service, while it may not provide that huge revenue at release, it would provide a more sustained revenue as compared to CD's.

Not to mention when you add things like 'play similar too' where you listen to artist outside of those you usually have the cd's for.


If a tiny artist uploads their new album to iTunes, the chances of masses buying them are nothing cause of their reputation, but tell the masses that you can listen to our music for free if they have the subscription and they would deff consider it a lot more.

 

[khkman22]

365 days/year / 12 months * 24 hrs/day * 60 min/hr / ~3.5 min/song average * $0.06/100 songs = ~$7.50 per month max that Apple would have to pay for royalties. If you assume 4 min/song average, it is about $6.57 royalty cost max. If they upped the royalty to $0.08/100 songs, it is about $10 and $8.75.

If you assume every user streams it from work 9 hours a day, 5 days a week, it is about $1.85 or $1.62 cost per user, depending on song length. If you add in 4-8 hours total streaming on each weekend, it may be ~ $2 max per user per month, but that is only the royalty costs associated with it.

I could see Apple offering $4.95/month service, but realistically, being Apple, I expect $7.95 to $9.95. Amazon would be more likely to be a $4.95/mo fee to try and undercut and gain users, but I don't think Apple will price it that low. JMO.

 

[lostngone]

Something is fishy

iHeart Radio is a Clear Channel Property.

The 22 cents sounds fishy. Does that number include the station palys as well?

If a mass media corporation as big as Clear Channel can not pay less then the industry standard something doesn't add up.

 

[gmanist1000]

This should be the flagship feature in iOS7. It could be a true game-changer.

Not really. We already have Pandora.

 

[jonnysods]

Things have been pretty tight for Apple....

http://www.youtube.com/watch?v=Wp7Jv3mwbW4

 

[xVeinx]

The licensing costs here are never the full story. You can be sure that the media labels will get a cut of advertising profits, etc. The media companies aren't going to allow someone to underbid them unless they are truly desperate, and that is something they most definitely are not at this point in time. Radio has always had to balance the streaming costs with the user base and associated advertising. Apple nor the media companies are going to walk away unless they are certain this will be an economically viable model.

 

[fixmymac]

C'mon MR Bot?! Put a pic of Adele, or someone notorious for being good not some wanna be. Change the article picture please.

A picture of Adele would irritate may 10x more than a picture of Bieber does. Adele is the UK's answer to Dido. Moaning, complaining, dreary songs sung with a voice that is as suicidal-sounding as a Verve track.

Woman! Cheer the f^&k up or f^&k the f^&k off!!!!!

Bieber has talent but is being marketed at the lucrative teen girl/boy audience, as with all young, good-looking artists - male or female. Has always been this way and always will be. So-called 'Talent Shows' will churn them out annually. The ability to actually sing is not relevant.

I am not a fan of Bieber's stuff, but nobody can deny that the boy has talent. His pre-fame busking videos show that. In a few year's time there will be a new Bieber and the world will shift their anger/jealousy on to them.

Oh, and on the subject of this thread...

Apple freely admit that they don't often come up with something brand spanking new. Most of their success comes from taking something that is already available and Apple-afying it.

Ken Segall gives the best insight into this process in his book, Insanely Simple. Schools across the planet should turf the bible into history and replace it with the Church of the Simple Stick.

 

[thehustleman]

Apple should just pay up, it's 12 cents per HUNDRED songs, not 12 cents per song.

Most valuable tech company can handle that

 

[ps45]

In other news, Turns out the media industry is greedy!

Say you listen to music non-stop for 8 hours each day. That's probably at the higher end of general usage. And say the average track length is 4 minutes. Then the royalty you will generate in a month would be a little over $2. (Assuming that this royalty is combined to include mechanical, performing and for the recording and the musical work).

How much will Apple charge for that service? If it's a $3/month or $36 annual subscription then they'd be offering a revenue split similar to that which they're offering app creators. But personally I think they'd price it higher. Is Apple greedy? I think it's fair to say that.

----------

...Adele is the UK's answer to Dido...

I think you'll find Dido is the UK's answer to Dido.

 

[wknapp0924]

If the artists aren't making enough money than they should goto school and get a new job like the rest of us do. Why are they any different than us? Besides the $.06 they are talking about is from Apple alone. They willl get paid from other avenues of distribution also, and lets not forget when you are streaming a song and you decide you want to hear more of that "unknown" artist, one click, sign in and you just bought the album from itunes and more money goes to the artist. I would jump on this deal if I were them.

 

[Handsome Bacon]

Can someone start paying me for having to see and hear Justin Bieber? I consider it some kind of cruel torture that deserves compensation. Please just fast-forward him to the fat/drunk/drugged up reality TV desperation version of 10 years from now.

Feel the same way about dubstep!

 

[joueboy]

Apple should start adopting independent records. Where musicians can produce their own music, and be able to go sell straight their music in iTunes without middleman. Apple will provide training in their Apple Stores or maybe a recording studio in every Apple Store all over the world. Apple will promote their music in iTunes or maybe use their music in their ads. I'm sure this famous musicians will start leaving their shark record labels once their contract is over. Later on Apple just solved the problem they are not negotiating anymore with greedy executives and kissing their asses. This brings more money for the real talents and local jobs. Apple will benefit on hardware sales and become a musician preferred computers. I'm tired of hearing this big record labels crying that they're not making enough money. Yet a lot real talents not getting the credit they deserve. They only promote people that they think could generate money and undermine their stupidity and gimmicks. Apple can be part of the solution and bring a real music to the people. After all GOOD MUSIC IS THEIR PASSION.

 

[Neuro]

Lol at everyone saying they don't care how much Apple pays as long as it's a good service. Same philosophy that resulted in customers finding their beef burgers were in fact horsemeat in Europe.

If you're not willing to pay a decent price for your products, you get sold *****.

Apple are using their dominant position to bully an already floundering music industry. The catalogue will be nothing but 'top 40' generic copycat *****.

 

[Music4Film]

Honestly, I don't care what Apple pays as long as the service is good and offers variety at a good value to us... the consumer.

Bring it on and more!

You should care what Apple pays. Because what they pay will dictate what you pay.

 

[Bezetos]

*Sigh* Apple seems to want to have a higher margin everywhere...

----------

I'm trying to find where he said "innovation" because what you said and what he said are two completely different things.

Explain to me how something can be a game-changer without being innovative. I'm listening.

 

[AaronEdwards]

1. I thought iOS users were more willing to pay for things than Android users
And yet here here we have the next step after iTunes Match, that allowed iOS users to exchange their pirated songs for better versions.

2. I thought Apple cared about artists? And yet here Apple is spitting in the face of artists.

3. I remember the threads a while ago with a lot of people hating on Spotify, and how little they argued that it paid artists. Yet it looks like Spotify is paying ten times what Apple is offering per stream. But it's Apple so it's all ok.

Hilarious.

 

[Cavepainter]

If the artists aren't making enough money than they should goto school and get a new job like the rest of us do. Why are they any different than us?

Artists are no different than the rest of us. But right now, in a town you've never heard of, there's a musician you don't know about who is writing a new song. You don't know his/her name, and it may seem like it came out of nowhere. He probably isn't even making a living writing music. That song a few years from now will become one of your favorite songs ever. It may make you smile, or make you dance, or make the hair on your arms stand on end. It could make you cry, it may save you from a deep depression and give you motivation to live. It may be playing in the coffee shop the moment you first meet the woman you will eventually fall in love with.

Do you really want that artist to throw in the towel, put down the guitar and go wait tables somewhere instead? Who will make new music for you?

 

[cgc]

I'm not a Bieber fan either but some of you guys here need to stop with all this laughable hate you have towards him. He can buy out MR and all of it's members and it would be like spending $5 to him. Let it go and accept, he's here. For how long, who knows? He became successful by luck of who discovered him but he's wealthy beyond means because he earned his money the smart way. Y'all may not admit it but most people wish they could be as successful as he is, especially the little time and effort it took.

Just because we DISLIKE his music, his attitude, his personality, etc. doesn't mean we HATE him, it means we dislike his music, his attitude, his personality, etc.

The amount of money he has means nothing either not sure why you had to bring that up.

 

[nw_mike]

Outrageous!!

OUTRAGEOUS!!!

When did they start referring to Justin Bieber as an ARTIST?!?!

 

[AaronEdwards]

Artists are no different than the rest of us. But right now, in a town you've never heard of, there's a musician you don't know about who is writing a new song. You don't know his/her name, and it may seem like it came out of nowhere. He probably isn't even making a living writing music. That song a few years from now will become one of your favorite songs ever. It may make you smile, or make you dance, or make the hair on your arms stand on end. It could make you cry, it may save you from a deep depression and give you motivation to live. It may be playing in the coffee shop the moment you first meet the woman you will eventually fall in love with.

Do you really want that artist to throw in the towel, put down the guitar and go wait tables somewhere instead? Who will make new music for you?

There's an app for that. Everyone will be able to make music. It will be crappy music, but it doesn't matter, since no one will be able to make any money from it anyway.

 

[topmounter]

Glad to see post-Jobs Apple continuing to aggressively bring new and innovative products to market