Apple aims to reduce the revenue cut music labels receive from Apple Music, which is currently 58%
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Apple aims to reduce the revenue cut music labels receive from Apple Music, which is currently 58%, according to Bloomberg.
Apple is in talks with Sony Music, Warner Music, and Universal Music — which own the rights to most of Apple Music's songs — as current contracts are expiring soon. Here’s why the news is important:
- Its indicative of the shift to streaming as the main way to listen to music. The labels are willing to negotiate these terms in part because the growth Apple Music has experienced. But the negotiations will likely depend on Apple's ability to continually grow its subscriber base, among other requirements, according to Bloomberg which cites people familiar with the matter. Similarly, Spotify recently renegotiated terms with Universal Music Group to lower royalties paid from 55% to roughly 52% in April, as the company has also shown promising growth.
- The sums paid out to record labels can significantly impact a company’s bottom line. Apple is looking to cut costs in an area that has affected its competitor, Spotify, and the company’s bottom line. For example, Spotify will pay $2 billion in payments to record labels over the next two years. Nearly 85% of Spotify's revenue went towards royalty rates in 2016, which could explain Spotify’s gross profit of just $502 million, per Recode.
- Streaming is driving growth for the overall music industry. In 2016, the majority of the music industry’s revenue was made from streaming services for the first time ever. Additionally, US music sales saw an 11% YoY growth in total revenue in 2016, which was largely attributable to online streaming.
Music streaming companies could leverage their scale and the overall consumer shift to music streaming in negotiations with labels. As of December 2016, Apple Music had 20 million subscribers. This is lower than Spotify, which last announced 50 million paid subscribers in March. However, both Apple Music and Spotify account for a large percentage of record labels’ royalties, which makes it increasingly difficult for labels to walk away.
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Apple aims to reduce the revenue cut music labels receive from Apple Music, which is currently 58% Read Full Story
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