updated 07:04 pm EDT, Thu May 9, 2013
Sony allegedly holding out for higher fee for streaming music
Apple may have hit another snag in its alleged plan to launch an "iRadio" service in the near future, according to an unconfirmed report from London's Financial Times. The forthcoming service, should negotiations get completed, would allegedly see iTunes offering a streaming music service that leveraged its enormous statistical and purchasing information from users to serve curated songs they would be likely to enjoy from artists they have bought before or would probably like. Sony, according to sources, is still holding out.
Allegedly, Apple has already secured a deal with Universal Music Group, and is close to an agreement with Warner Music. The three companies together represent all the major labels and many smaller ones as well. Again according to stories from sources, Apple had originally offered a streaming royalty rate of about six cents for every 100 tracks played, which is about half the rate paid by Internet radio giant Pandora. Apple is said to now be offering to pay the same rate as Pandora, about 12.5 cents per 100 tracks streamed.
Sony and some minor labels are said to be holding out for a higher rate, since they feel that Apple's service is likely to become "the future of radio," and don't want to get locked in to a rate they may later feel is too low, as happened with iTunes. Supposedly, Apple has been countering this argument by pointing out that it is offering three avenues of income for the content providers: the streaming royalty, a share of the "iRadio" service's advertising revenue and a guaranteed minimum amount if plays and advertising amounts fall below expectations.
The "iRadio" service, if true and being described accurately, would also enrich the record companies through increased sales of music, since it would use existing user data to predict a selection of tracks each individual listener is likely to enjoy and offer a seamless way buy any desired songs though its existing iTunes infrastructure. Though Pandora and other services like Rdio and Spotify also offer the option to purchase tracks, none can boast the 400 million credit cards already on file and complete eco-system for discovering, listening and purchasing that Apple can.
The service, as described, would function similarly to Pandora in that it would use an algorithm based not just on the individual user but the whole base of iTunes users to determine artists the user would likely find worthwhile, consisting of both artists the user has already bought from and those that are similar in nature. The "iRadio" feature would be unlikely to charge a subscription such as Pandora, Spotify and others do beyond a very basic level, and instead be funded by advertising.
Apple's iTunes is already by far the single largest source of digital music revenue for the music industry, providing $3.4 billion to music labels in 2012 according to Asymco's Horace Dediu. According to the report, Apple had hoped to launch the service (which has been dubbed "iRadio" by others, not Apple) as early as last October, but has consistently hit obstacles in its efforts.
Complicating matters is the fact that Google is also negotiating for a similar service that it plans to launch. In addition, the entire industry is currently in court in the US overroyalty rates paid by Internet-only radio stations versus "terrestrial broadcast" stations that also share those broadcasts online.