Apple has made a move to quell the uproar over the pennies artists receive from streaming companies by tendering a new payment formula that will be put before the US Copyright Board. From an optics viewpoint, it’s a good move, but due to circumstances related below, there’s a hitch: Apple doesn’t need to abide by the formula that is designed, intentionally or otherwise, to force its competitors in the music streaming arena to pay more.
Apple has put together a proposal to set fixed songwriting royalty rates for music streaming services. The government filing, obtained by The New York Times and not made public by Apple, was crafted in collaboration with the Copyright Royalty Board and it would set songwriting royalty rate at 9.1 cents per 100 streams.
Although the change would simplify what has long been a mystifying and complex royalty system, it would also significantly hike costs for competing streaming services such as Spotify. It’s important to note that because Apple struck its own deals with record labels for its Apple Music service, the company may be able to avoid following the rules of its own proposal.
The new rates, if adopted, would drastically alter how songwriting rates are decided, how much artists receive, and how costly it is to operate in the streaming business. As it stands, companies like Spotify, Google, and Pandora pay out royalties according to complicated federal laws. These new rules would take effect in 2018 and remain active until 2022 as part of a Copyright Royalty Board proceeding that takes place every five years.
The 9.1 cents per 100 streams rate would works out at $910 per million streams, or $910,000 for a billion.
Apple didn’t rely on statutory rates when launching Apple Music last year – it inked its own direct deals with rights-holders.
The company confirmed before launch that it would pay labels and publishers 71.5% of all Apple Music revenues in the US after users’ three-month free trial – slightly higher than Spotify’s typical 70%.
Outside the US, Apple is believed to pay around 73%.
Last summer, MBW discovered that Apple Music was paying independent labels $0.002 per stream for its free trial before tax, but this figure did not include publishing/songwriting payouts.