With current contracts with record labels set to expire at the end of this month, Apple is looking to reduce what it pays the labels for streaming music, Bloomberg reports. According to people familiar with the matter, the talks are part of larger negotiations to revise Apple’s relationship with the music industry overall, and cover not only the Apple Music streaming service, but also content available for sale on the iTunes Store. The new terms Apple is seeking would bring the company closer to the rate that Spotify is currently paying the record labels, who are reportedly more optimistic now about the future health of the music industry, following worldwide growth of 5.9 percent last year that was directly attributable to Spotify and Apple Music.
The labels recently negotiated a new deal with Spotify that lowered their take from the service, conditional on Spotify’s continued growth, so it’s not surprising that Apple is now seeking similar terms. Under Apple’s current deal, signed two years ago for Apple Music, record labels receive about 58 percent of revenue from subscribers. By contrast, Spotify was able to reduce its rate in recent negotiations from 55 percent — still a better deal than Apple had — down to 52 percent, although again the decrease was tied to certain guarantees on subscriber growth. The labels are said to be open to a similar reduction in Apple’s rate, subject to the same types of terms regarding growth and certain other requirements.
Apple initially agreed to pay a higher rate to the labels for Apple Music streaming in order to address concerns that the streaming service would cannibalize traditional digital music sales through iTunes, however the growth of Apple Music hasn’t had the negative impact on iTunes sales that the labels had feared, although music executives remain cautious in light of the continuing decline of online music sales over the past few years. As part of the negotiations, labels are asking Apple to commit to promoting iTunes in countries such as Japan and Germany where streaming isn’t as widely adopted. While the deals between Apple and the various record labels all expire at the end of June, they will likely still be extended if the parties can’t agree on new terms by that time.