Apple has made progress in cutting deals with music labels for an Internet radio service but time is running out, several reports said today.
According to the Wall Street Journal, the New York Times and others, Apple inked an agreement Sunday with Warner Music for both recording and publishing rights, following an earlier deal with Universal Music Group for recording rights only.
Apple is hustling to wrap up negotiations with another major label, Sony Music, and its publishing arm, Sony/ATV, in time to announce a service next week at its Worldwide Developer Conference (WWDC), unnamed sources told the publications.
WWDC kicks off Monday, June 10, with a 10 a.m. PT keynote, which traditionally is the part of the conference when Apple unveils new software, services and hardware. Apple at WWDC will highlight both iOS 7 and OS X 10.9, the next operating system for the iPhone and iPad, and Mac, respectively.
An Internet-based streaming service would presumably be included in both iOS 7 and OS X 10.9 if Apple finalizes agreements with the labels.
The hang-up over doing deals is Apple's demand for lower royalty rates than Pandora pays, said Aram Sinnreich, a media professor at Rutgers University. "Apple argues that it's the No. 1 music retailer, and that that can be a great front end to drive sales," said Sinnreich.
According to the reports, Apple's service, dubbed "iRadio" by pundits, would be free to consumers and supported by advertisements, like Pandora, the closest current competitor. iRadio would be tied to iTunes, its dominant music sales engine, rely on Apple's iAd platform to deliver advertisements, and provide one-button purchase of a currently-playing track.
But the labels are leery of signing contracts with Apple that undercut royalty rates now paid by Pandora and others, and have been demanding a larger cut of advertising revenue as well as large advances against royalties. The Wall Street Journal, for example, said its sources indicated Apple had bowed to Warner's demands, and promised the record label 10% of all ad revenue.
"The labels are playing chicken," said Sinnreich, and understand Apple is in a rush to strike deals before WWDC. "But Apple will blink. This is pure speculation, but I think Apple will offer huge advances against royalties rather than giving way on the royalty rate," he said, adding that the labels "love cash more than anything."
Apple does have advantages over rivals. "Apple has indicated that, unlike Pandora, they'll dedicate a portion of their interface to promotional content," said Sinnreich. "They're willing to integrate promotions ... Pandora won't, which is why some customers love Pandora."
Although Sinnreich said that Internet radio and on-demand services have not been the savior record companies hoped they would be -- that people listening to free or all-you-can-consume services would buy more digital tracks -- they also recognize that there is some money to be made. According to data released in April by the International Federation of the Phonographic Industry (IFPI), a trade group representing some 1,400 member firms, music subscription and ad-supported streaming services accounted for 20% of the world's digital revenues in 2012, up from 14% in 2011.
Sinnreich thought the 20% was accurate, but only when on-demand subscription plans -- which Apple's iRadio will not be -- are included. Pure Internet radio is a low-margin, low-revenue business.
And Apple is late to the party: Talk of an iRadio service has circulated for more than a year, and longer than that for a music service of some sort. It's also been trumped by Google, which last month rolled out All Access, a $9.99 per month on-demand music subscription service.
Then, analysts pooh-poohed the idea that Apple had lost the race, noting that the Cupertino, Calif. company was, after all, interested in serving only its own ecosystem, just as Google was aiming at the Android market.
Sinnreich said much the same today. "Apple's still very relevant in the digital music strategy of the labels," he said.
The biggest barrier to agreement between Apple and the labels, Sinnreich added, has been the difficulty the music industry has had coming to terms with change.
"Records and radio were once two totally different technologies, with totally different organizations and legal language," Sinnreich observed. "Now the lines between the two have blurred, and [the music industry] has an organizational problem at large dealing with that."
