The major labels have a mixed record when it comes to making good deals with music tech companies.
Apple’s Steve Jobs cajoled them into selling all tracks as 99 cent singles on iTunes, which soon decimated full album sales. Just two years later, label chiefs declared that Apple was too powerful, but until Spotify, there was no real alternative.
More recently, YouTube became Music Industry Enemy #1 for paying too little given its massive user base and revenue. But it was those same labels that agreed to these terms in the first place.
In recent months, all three major labels and indie licenser Merlin have agreed to deals with Spotify that lower the percentage of revenue that the streamer must pay to artist and labels. These rightsholders agreed to the cuts largely in exchange for concessions and promises from Spotify to convert more free users into much more lucrative paying subscribers.
Today came word that Warner Music Group had struck a deal with Apple Music that, like the new Spotify contracts, would also lower the percentage of revenue that Apple Music must pay. But Apple Music only has paying subscribers; so it’s unclear what concessions, if any, WMG received in exchange for accepting a lower rate of payment.
The remAining two major labels will inevitably make similar lower rate deals with Apple and the other music streamers.
Bundled Discounts Lower Prices Further
Also on Thursday, Spotify announced a deal to bundle its premium music service with Hulu’s paid tv and movie streaming package. The initial focus is on college students and offers combined services for $4.99 per month. That is the same price that Spotify had been charging students just for music; and it’s 50% off the regular $9.99 premium music service price. Additionally, a large percentage of that discounted monthly fee is going to Hulu.
In the launch announcement, Spotify said that this was “the first step the companies are taking to bundle their services together, with offerings targeted at the broader market to follow.” Expect Apple and other music streamers to follow with bundles of their own.
Previously, the discounts offered by Spotify, Apple Music and other streamers were restricted to new users and lasted for 90 days or less. Now bundled discounts can go on forever.
Why This Matters To Artists and Indie Labels
Payments from interactive streamers like Spotify and Apple Music are calculated as a percentage of revenue. Thus, when that revenue is reduced through lower rate deals with labels or ongoing discounts and bundling, the money available to pay artists and labels per stream decreases.
The theory behind cutting prices and payments is that it will further accelerate the phenomenal growth that streaming is already experiencing. the major labels are banking that rapid growth will more than cover the decreases caused by new deals and deep discounts.
But for smaller labels and independent artists, the short and medium term consequence could be smaller checks.