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How Google beat Apple to a streaming music service

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Sources say iRadio is still mired in licensing talks and may not be ready for WWDC

Google Music All Access
Google Music All Access

Google's long-rumored Play Music All Access service is already out the door, while Apple's iRadio is still bogged down in licensing talks. According to music industry sources, all the haggling could prevent Apple from debuting the service at the Worldwide Developers Conference next month.

Sony/ATV, the largest music publisher, has rejected Apple's terms according to published reports. What's more, The Verge has learned this week that BMG Rights Management, the fourth largest music publisher, is also holding out. Insiders say that there's still plenty of "market momentum" behind iRadio and some of the industry's largest players — including Universal Music Group, which was the first to license songs for the service — want to see it launch as soon as possible.

Some of the industry's largest players want to see iRadio launch as soon as possible

How was Google able to secure deals for All Access, which was unveiled at Google I/O on Wednesday, while Apple has been stymied? For starters, Google chose to offer a standard subscription music service very similar to those built by Spotify and Rdio, and that meant the terms had largely been established, according to multiple sources close to the talks. Apple, on the other hand, is pioneering a hybrid web and radio service — one that resembles Pandora but melds it with some on-demand features, the sources said. The licensing agreement had to be created from scratch.

"Of course [Apple's] negotiations were going to take longer," one of the sources said.

Multiple industry insiders say that Google also had an easier time of getting licensed because it agreed to pay advances to some of the major copyright owners. Apple has a long history of refusing to pay advances and — at least initially — didn't offer any. Sources say that Apple has agreed to pay content owners a share of ad revenue, a per-play fee, and a minimum guarantee.

Sources say Apple has agreed to pay content owners a share of ad revenue

Google's Access Music is also a Spotify-like, on-demand model and that's much more lucrative for the labels than Pandora's webcasting service, which is what iRadio will resemble. To be sure, iRadio is no Pandora clone. If it was, it would never get licensed.

The record companies and music publishers don't want another web radio service that satisfies a lot of music consumption but doesn't pay them much. "It's very important that new digital services pay songwriters and music publishers a fair share of the money," said David Israelite, president of the National Music Publishers Association, which is not involved in the negotiations. Israelite has been vocal about what he believes are the inequities in compensation between the labels and publishers. "We can not repeat the disaster that was Pandora where songwriters were asked to take a tiny fraction of the revenue."

The reality is that the music industry is happy to see mammoth tech companies like Apple and Google, which have up to now focused on download sales, embrace what the labels refer to as "access models." The widely held belief by industry leaders is that to stop the slide in music sales, consumers have to be offered unlimited access to deep pools of songs that are supported by either small, monthly subscription fees, or advertising sales.

These tech titans can afford to take a loss

Spotify is the top music subscription service. The company has attracted more than 6 million paying subscribers by enabling them to listen to any song in its library anytime they want for $9.99 a month. Over at Pandora, the online radio service plays songs randomly and relies on ad sales to pay the bills. But neither of these companies have come close to generating profits; the top record companies hope that Apple and Google can wade in and do a better job of that. And if streaming music turns out not to be a profitable business, these tech titans can afford to take a loss, as long as it makes their overall ecosystems more attractive when considering which smartphone, tablet, or set-top box to buy.