Who says Apple’s music executives aren’t smart? In what may end up being a brilliant strategic move, the company discretely made a proposal to the governing Copyright Royalty Board to increase the song publishing royalty rate to 9.1 cents per 100 interactive streams, a significant increase over what is currently paid, according to the NY Times.
On the surface, this is not only an greater payday for songwriters and music publishers, but also a vast simplification over the current complex royalty calculation. Streaming services now pay publishers from 10.5 to 12% of overall revenue, which is determined via a strikingly large number of factors that changes with the device used, the country the user resides in, if the service is bundled, and the type of subscription, to mention just a few. The music royalty collection company Audiam reports that the average publishing royalty is now around 5 cents per 100 plays, so Apple’s proposal of 9.1 cents represents a windfall for a part of the industry that has suffered during the run up of streaming popularity.
There’s also a psychological impact that goes along with that figure however. Currently, the mechanical royalty rate for every song on a CD or vinyl record, or a download, is also set at 9.1 cents. A streaming rate set similarly will not only bring it in line with those standards, but put the ease of calculation back in the hands of the songwriter and publisher, who must now depend upon the streaming company to calculate the monies owed.
The Back-Door Strategy
While simplicity may seem to be the overriding factor for the proposal, there’s something much more strategic behind Apple’s thinking. First of all, an increase in publishing royalty payments would severely stress stand-alone streaming companies who’s only product is music streaming like Deezer and Tidal, but most especially Spotify. That company still hasn’t turned the corner to profitability, and having to pay roughly 80% more in publishing royalties might keep it that way, which may put the company in a more serious bind with its already itchy investors.
Not only that, it would put a severe crimp on any interactive streaming service (as opposed to non-interactive like Pandora) that currently features a free ad-supported tier, since the royalty rate per 100 streams would be the same regardless of if the subscriber makes a monthly payment or not. Such an increase in expenditures might put an end to the free tier as we know it (which in the end, might not be such a great thing for the industry – a topic for another day). [Read more on Forbes…]