Apple Music heats up battle with Spotify, proposes higher royalty rates

Apple Music is proposing to significantly increase songwriter royalty rates from streaming services. In a private filing to the US Copyright Royalty Board, it suggests that the royalty rate for publishers should be set at 9.1 cents per 100 streams of a song for all services including Spotify, Tidal and Deezer.

“An interactive stream has an inherent value,” Apple wrote, “regardless of the business model a service provider chooses.”

The current rate is 5 cents per 100 streams, according to music royalty collection company Audiam.

The 9.1 cents figure is psychologically important for the music industry: it is also the mechanical royalty rate for every song on a CD or vinyl long player or a download.

If Apple’s proposal is taken up, the new rates would be in place in two years.

But it’s far from a done deal. Apple’s filing was made as part of a proceeding by the Copyright Royalty Board to set statutory rates for downloads and interactive streaming services from 2018-22.

The Apple proposal would simplify the whole laborious royalty process from streaming which confuses songwriters as to what exactly they are entitled to. Currently streaming services pay 10.5% to 12% of overall revenue. But the calculation depends on, among other factors, what devices are used, in which country the user lives in, if the stream was part of a bundle and the nature of the subscription deal.

But more than simplifying and increasing royalties, this is smart strategy from Apple Music.

It already has songwriters and artists on its side by its refusal to have a freemium tier on its service.

As recently as last week, Eddy Cue, Apple’s Senior Vice President of Internet Software and Services was telling the Hollywood Reporter, “We agree 100% with artists that they should have the right to decide where their content is available whether it’s free or when it’s free, when it should be paid or how much it should cost.”

Having more artists on side would mean more exclusive deals, the key to grabbing more subscribers.

Within a year of operation, Apple has relatively gained more ground than Spotify, which launched in Europe in 2008. In its first 12 months, Apple Music has got 15 million subscribers. Spotify last month said it has more than 100 million monthly active users worldwide, including approximately 30 million monthly paying subscribers.

But the crux of the latest battle between Apple Music and Spotify is that Apple can well afford to pay higher rates.. Last year, its parent company was estimated to generate US$193.5 billion (A$258.1 billion), or $70,000 ($93,400) in profit every 60 seconds.

Spotify, however, is not in that financial position. It is still not in profit yet, and recently went into $1 billion (A$1.3 billion) debt financing just to expand globally.

Paying arguably an extra 80% in publishing royalties would obviously be a greater could drain on its cash. Spotify already suffers bad PR with many songwriters and publishers. Its royalty rates are hazy. This year it’s been embroiled in lawsuits from high profile artists complaining about a lack of transparency in pay-outs, and is hastily negotiating with publishers over unpaid mechanicals.

But having said that, Spotify is finding new ways to generate revenue from its rivals with deep pockets.

It is still widening its subscriber base. It recently hired Troy Carter, who has a strong background in the tech and music industries, and remains famous for once managing Lady Gaga. Carter’s brief is to use his undeniable contacts to gain exclusive content for Spotify.