Apple Inc. (NASDAQ:AAPL) is trying to do the impossible. Apple has gone hat in hand to record labels and asked them to give away their music for free. Beats Music, the streaming service that Apple is set to launch next week at WWDC, would prefer not to pay artists for their music if rumors about Cupertino’s plans are to be believed.
There is some expectation that Apple could use the Worldwide Developers Conference as a platform to announce moves designed to take on streaming media services like Spotify and Pandora. Apple appears to be working on a deal to bring Drake on as a DJ for iTunes Radio. The deal is reported to be worth somewhere in the neighborhood of $19 million. Artists who are also said to be in talks with Apple include Pharrell Williams and David Guetta.
That plan, which cropped up in a New York Post article on the firm’s new music app, involves Apple giving its new music service for free to iPhone users for the first three months after launch. If Apple isn’t making money from the music it does not see why it should have to pay the record companies or their artists.
Apple won’t pay for music
The source that spoke to the New York Post said that Apple wants to offer a three month long free trial for iPhone on Beats Music. After that users will have to pay $10 per month.
The firm is trying to convince record companies to take no payment for their music during that free trial. Apple will start paying for music once users start paying for it too.
Spotify offers an ad-supported free service right now, but Apple wants to make Beats Music a premium offering. That means no ads, but Apple doesn’t want to lose billions during all of those free trials.
Jay Z strikes out at Apple
The Apple plan to avoid paying artists for their music is sure to annoy Jay Z. The rapper is trying to launch Tidal, his own music service, right now. While marketing the music service, Jay Z has focused on what he sees as a fair deal for artists.
He’s promising to pay more than Spotify, and a lot of celebrities are getting behind his drive. His wife Beyonce, Kanye West and Madonna are among those with a share in Tidal and place in the public push behind the service.
Trip Chowdhry, analyst from Global Equities Research, weighed in on free music earlier this year. He said “The days of doing free stuff is almost over. We have seen the results from many companies. Basically, what free says is, your product is so damn bad, nobody will buy it.”
Apple is, according to the New York Post, also looking to create a star studded team to drive Beats Music usage. Rapper Drake has been offered a $19 million deal to appear as a guest DJ, and more, on the service.
Even though Apple is going to try to not pay for music, the firm is not against paying for talent. Tim Cook has reportedly offered Drake the sum in order to bring star power to iTunes Radio and grab the attention of more of the target audience.
That’s an interesting strategy from Apple, though it’s clear that the New York Post report is just one side of the story. There are reasons that record labels may accepts a $0 offer for their streaming rights. The numbers in a recent leaked Sony contract speak for themselves.
Record labels may offer free music
Record labels don’t care all that much about paying artists a high wage, but they do care about maximizing their own takings. Letting Apple pay nothing for streaming may be a good way to do that, as silly as it sounds.
A contract between Sony and Spotify was leaked earlier this year. The document gave an insight into the way deals between music labels and streaming services work. Spotify was forced to pay a massive advance to Sony before being allowed to pay for each track played.
Apple may be able to secure a low, or even zero, rate per track streamed if the firm is willing to pay a huge amount of cash up front.
Free streaming for three months would be just one part of a much bigger package. Apple will offer something to attract record firms into taking the deal.
Record companies may prefer direct transfers as they are not covered in the contracts they have with most artists.
Apple won’t really be paying nothing to the record companies. It may, be paying nothing for each stream of a song. That means that artists may not get paid during the trial, though the record companies will.
Apple will have to prove to record companies that people are willing to pay the $10 per month for Beats Music. If the “product is so damn bad nobody will buy it,” Apple will have a very hard time selling the idea to the labels, even with so much market power behind the firm.