Apple secures music deal with Warner; Sony next

This is Apple's first agreement with major label, since introduction of on-demand music

Apple has secured a deal for songs from Warner Music Group, the technology giant’s first agreement with a major label since introducing its on-demand music service two years ago, according sources.

Warner will provide Apple a catalog spanning Ed Sheeran, the Red Hot Chili Peppers and Bruno Mars for both iTunes, the online store, and Apple Music, the streaming service. Apple plans to pay record labels a smaller percentage of sales from Apple Music subscribers than it did under its first deal for the streaming service, the people said, asking not to be identified discussing private information.

Large technology companies and music rights holders are establishing a framework this year for how to share proceeds from on-demand streaming, now the dominant source of sales for the record business in the US Music rights holders are willing to accept a slightly smaller share of the sales from on-demand services, provided those services continue to sign up paying subscribers at a high rate.

Sony Music Entertainment, owner of the second-largest record label, is also on the verge of a deal with Apple, one of the people said. A deal between Apple and Universal Music Group, owner of the top label, is further off.

Paid streaming was still a fledgling business when the company signed its initial deal, and it was willing to lose a little extra money because the service was intended to boost sales of the iPhone. Once the dominant player in online music, Apple was also eager to get a service on the market that could compete with growing rivals Spotify Ltd. and Google’s YouTube. Music has now taken on larger importance at Apple. The concept of paying for access to a trove of songs and curated lists on demand has since revived a music industry that was in decline for nearly two decades. Global music sales grew 5.9 percent to $15.7 billion in 2016, according to The International Federation of the Phonographic Industry. That number will climb to $41 billion by 2030, Goldman Sachs projected in a recent report.

The streaming service contributes to Apple’s services revenue, which the company aims to double to about $50 billion by 2020; and as users add more songs to their library, it serves to dissuade them from trading in their iPhone or iPad for a competing Android-operated device. 

The company also is said to be planning to spend about $1 billion in the next year on original video programming for Apple Music and other future video streaming products.

Apple pushed for a rate cut in this new round of talks after Spotify, the world’s largest paid music service, secured a rate reduction earlier this year. Apple has been paying labels 58 per cent of sales, a higher rate than Spotify pays. Apple also traditionally granted publishers a higher rate than its Swedish rival. Apple is now considering giving labels a cut of 55 per cent, which would decrease if subscriber numbers met targets.

Spotify had been paying labels about 55 per cent of sales from paid subscribers, and paid publishers as well. That rate fell to about 52 percent, though the rate cut is contingent upon Spotify reaching certain performance metrics.

Talks between Apple and the music industry are seldom as acrimonious as those including most other music services. While YouTube, Spotify, Pandora and other services allow people to listen to music for free, Apple only sells a paid on-demand service.

Warner Music Group is the first major music company to reach new, long-term deals with all three of the biggest players in music, Apple, YouTube and Spotify. Universal and Sony have agreements with Spotify, but have yet to sign new deals with YouTube and Apple. Warner hired former Sony executive Ole Obermann to oversee its digital business last November.