According to The New York Post, the reason negotiations have stalled between record companies and Apple in regards to the Cupertino-based company’s potential Internet music service has to do with royalty rates. Apparently, Apple is offering a price that’s far too low, which has record companies reluctant to accept.
Apple initially proposed a royalty payment of 6 cents per 100 songs streamed, which is exactly half of the 12 cents per 100 songs that Pandora pays. Pandora is currently the leading radio service, though recently, the company has been forced to limit its free users to 40 hours of mobile listening per week due to cost increases.
Pandora pays a less than other streaming services, because the company has restrictions on how users can access content. For example, Pandora users are not able to play specific songs, rewind, or skip more than a couple of songs each hour.
Apple reportedly wants Pandora’s low rate without the restrictions. While music labels recognize that an Apple-branded streaming music service would likely pull in a huge amount of revenue, they don’t want agree to lower price with less restrictions.
Music label insiders suggest Apple — which is sitting on a cash hoard of roughly $137 billion — ought to pay at least the rate set by the Copyright Royalty Board, or about 21 cents per 100 songs streamed.
While Pandora pays 12 cents per 100 plays, the Copyright Royalty Board’s standard rate is 21 cents per 100 songs streamed. iHeart Radio pays 22 cents per 100 songs streamed and Spotify pays a whopping 35 cents per 100 songs streamed because it offers few restrictions on playback.
Another report from The New York Times suggests that the pricing negotiations have delayed Apple’s efforts to launch its streaming music service. While Apple hoped to launch the service in early 2013, it is unlikely to be unveiled until the summer.
Recently, Apple CEO Tim Cook met up with Beats CEO Jimmy Iovine to discuss Beats Electronics’ upcoming subscription music service, which has been named Project Daisy.
In January Iovine revealed that he had pitched a streaming music service to Steve Jobs. While Jobs liked the idea, he was unwilling to pay the record companies the licensing fees they were asking for.