This Is What Apple’s Paying Music Labels on iTunes Radio

Who's the fairest of them all?

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Matt Peckham

Earlier this week, Pink Floyd members Roger Waters, David Gilmour and Nick Mason dropped a bomb on Internet radio service Pandora for lobbying Congress to scale back what artists get paid, calling the service an “Internet royalty ripoff.” Pandora fired back with a double-edged love-and-lambaste letter, praising Pink Floyd while at the same time suggesting the band’s members had been duped by the big bad Recording Industry Association of America (RIAA).

Since neither side’s willing to let someone peek at the entire equation, it’s impossible to say who’s right (or more right, anyway), who’s spinning, what they’re spinning, how many hands are in the till, how big the till is and so forth. All we (think we) know for sure, amidst the informational detritus, is that Pandora pays labels $0.12 per listen.

Here comes Apple to kinda-sorta disrupt that model by hiking the price it’ll pay labels a few more pennies to $0.14 per listen courtesy its forthcoming iTunes Radio service. That’s after the first year, anyway: During that initial year, Apple would pay labels $0.13 per listen, along with 15% of net advertising revenue, reports the Wall Street Journal (which notes it reviewed Apple’s terms). After that, the fee climbs to $0.14 and 19% of ad revenue. The Journal adds that Apple plans to pay music publishers “more than twice” what Pandora does in royalties — a stance that allows Apple to capitalize on Pandora’s PR imbroglio in the wake of the Pink Floyd wrangle.

Billboard reports that the minimum royalty rate will be 45% of net advertising revenue, plus $21.25 for every 1,000 listener hours during the first year, which bumps to $22.25 through the rest of the licensing arrangement.

What about songs you already own? Apple pays nothing in royalties for digital tunes you’ve purchased or drawn from CDs and stored in your local iTunes library. Songs offered as promotional will also be exempt, nor will Apple have to pay for songs you’ve only listened to for 20 seconds or less, though if I’m reading the Journal correctly, that only applies to two songs per hour per user.

Independent labels are said to have received a slightly different (but mostly similar) deal; the three heaviest hitters, Universal Music Group, Warner Music Group and Sony Music Entertainment will apparently get cash advances against future royalties, for instance.

Is it really fair to compare Pandora’s rates to Apple’s? Without full transparency, it’s impossible to say for sure. Pandora naturally argues that no, it’s not, Pandora’s founder Tim Westergren quipping to the Journal “It’s apples and oranges.”