For years, when it came to driving negotiations with internet music services over licensing, the top record labels were the locomotive and the publishers were the caboose. If the labels licensed songs, then usually the publishers dutifully followed. But now these publishers are in revolt, refusing to simply follow along, and holding up negotiations on Apple’s iRadio. At the heart of the dispute are shifting economics. The industry is moving from CD sales and digital downloads to streaming services like Spotify and Pandora. In that new model the publishers have been making far less money.
Sony / ATV, the publishing company operated jointly by Sony and the singer Michael Jackson's estate, has refused to license Apple's proposed web radio service, and that's reportedly a big part of why we haven't seen iRadio, the unofficial name given to the proposed webcasting service. Sony isn't alone, however. Music industry sources told The Verge last week that BMG Rights Management, the reinvigorated music division of German conglomerate Bertelsmann, is also holding out for better terms.
The lesson for those in web music is that negotiations could prove to be much more difficult with this group of creators. Music publishers represent songwriters and composers, who make a big chunk of their royalties from CD and download sales. But those formats are in decline, disc sales have been plunging for a decade, and the growth in downloads has slowed to a trickle. Revenue from song downloads — in the double-digit percentages for most of the past decade— increased last year by 6 percent. That's unlucky for the publishers because they don't make as much from streaming music.
Apple should have anticipated that it might run into trouble with the publishers
Pandora, the internet's top online radio service, was able to obtain recorded music rights via a blanket license that Congress created for online radio services. For publishing rights, the webcaster struck a deal with the performance rights organization (PRO), who once negotiated digital contracts on behalf of the major publishers. The one-stop shopping for publishing rights was a sweet deal for Pandora but the publishers were left unsatisfied with the terms. To prevent similar deals, they recently began to take back their digital rights from PROs, such as BMI and ASCAP. Apple and any other would-be webcasters must now negotiate separately with each of the big publishers.
A part of the problem is that the publishers' compensation is out of whack with the labels. According to Billboard, music publishers negotiated a rate of 12 percent from Amazon, Google, and iTunes for their scan-and-match cloud services, while the labels received 58 percent of revenue, a ratio of about 5-to-1.
"We don't have anything against Pandora's service," said one music industry executive. "We just don't like the economics."
"We don't have anything against Pandora's service. We just don't like the economics." Apple should have anticipated that it might run into trouble with the publishers. In September 2010, Apple was set to roll out 90-second song samples at one of the company's media events but had to shelve them at the last minute. The National Music Publishers' Association got wind of the deal and sent Apple a nasty note informing managers that if it went live without licenses it would be violating their rights. Apple's longer song samples finally made their debut three months later. If that kind of delay happens again, an iRadio launch next month at Apple's Worldwide Developers Conference seems unlikely.