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iStream delayed as Apple pushes for super low royalties, while Pandora losses increase

By | Published on Friday 8 March 2013

Apple

Apple’s much and long mooted streaming service is taking longer than the tech giant would like to reach market because of the firm’s royalty offer, according to a report in the New York Post.

It’s no secret that Apple chiefs have been driving a hard bargain when negotiating with labels and music publishers about the addition of a streaming element to the market-leading iTunes platform, though the Post article includes claims about the sorts of figures being bandied about.

Although Apple arguably did the music industry a massive favour by kicking the labels into licensing the iTunes download store back in the day, and now provides one of the labels’ most important revenue streams, the IT giant has never been all that keen on taking too big a financial risk itself when it comes to licensing content.

In the download space that’s never been a problem, iTunes only paying money to the labels and publishers when a track is sold, but most streaming music services have had to operate at a considerable loss at launch, paying royalties to content owners before any advertising or subscription revenues have even begun to take off. Keen to keep any upfront financial risk to the minimum, Apple has – according to the Post – been proposing a six cents per 100 streams rate.

It is thought that any iStream service would operate a Pandora-style service, with limited interactivity. Such services are cheaper to licence than fully on-demand streaming platforms like Spotify. But even so, says the Post, Pandora pays twelve cents per 100 streams, via its licence from American collecting organisation SoundExchange, the rates for which are set by the statutory Copyright Royalty Board.

Pandora, of course, has been busy lobbying – somewhat controversially in music business circles – to have its rates cut, arguing that the current rates are not viable, and that it puts online interactive radio services at a big disadvantage to satellite radio services in terms of percentage of overall revenue that goes directly to content owners (royalties paid by Sirius XM are calculated differently), and even more so to terrestrial radio stations, which, due to an anomaly in American copyright law, pay no royalties to the labels in the US at all (though they do have to pay publishers).

An Apple streaming service, built on the back of the iTunes download store, could become a big deal very quickly of course, and provide a new revenue stream to the labels. But the record companies will be wary of dropping their royalty demands too far, especially while concurrently fighting Pandora’s efforts to cut its payments in Washington.

Talks, it is said, are ongoing, with both sides due to come back with updated proposals, though initial resistance at the music companies has caused Apple to slow down its ambitions to enter the rapidly expanding streaming music market.

In related news, the now publicly listed Pandora announced that its revenues were up 56% for the financial year ended 31 Jan, thanks mainly to an increase in mobile revenue, though losses were nevertheless up, from $16.1 million to $38.1 million, thanks to rising content costs. Nevertheless, the firm’s share price went up, with increased optimism that the company could actually go into profit in the next couple of years.

Just before its latest earnings call, Pandora revealed that its CEO, Joe Kennedy, was stepping down. He told investors it was time to “head to a re-charging station”. Pandora founder and Chief Strategy Officer Tim Westergren said: “Over the last nine years I have enjoyed an extraordinary partnership with Joe, working with him to grow the company and build an exceptional team”.



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