Apple Reportedly Wants to Pay Lower Royalties Than Pandora, Whose CEO Just Left

Apple would pay 0.06 cents per play, sources said

Apple
Apple reported $13.1 billion in quarterly profit the day this was taken / Photo by Getty Images
Marc Hogan WRITTEN BY
Marc Hogan

And around and around the online music-streaming business goes.

Earlier this week, Reuters reported that Apple was in talks with the upcoming, Trent Reznor-affiliated music subscription service planned by Beats Electronics. Yesterday, the New York Post reported that Apple has been discussing its own music-streaming service with record labels. The catch, sources reportedly said, is that Apple was offering a royalty rate of a mere 0.06 cents per play.

For context, that's about half the rate rival music streaming service Pandora currently pays, which is about 0.12 cents per play, the sources said. The Library of Congress' Copyright Royalty Board sets a roughly 0.21 cents -per-play royalty rate for webcasters. Broadcast-affiliated online radio services such as iHeart radio reportedly pay roughly 0.22 cents per play. Spotify pays roughly 0.35 cents

Apple's streaming service would seek to build on rather than cannibalize its existing iTunes store and iTunes Match cloud storage. According to Billboard, Apple's online radio service would include a "buy" button that links the listener to iTunes. Still, label executives are reportedly leery of the plan for now. Apple is notoriously sitting on a pile of nearly $140 billion in unused cash, so this is all somewhat ironic, but nobody gets that kind of money by paying retail.

Royalty rates are a heated political issue. Pandora has been championing legislation that would let it pay lower royalties. Pandora co-founder and chief strategic officer Tim Westergren reportedly pressed his cause just this week in an event at the conservative Heritage Foundation. A long list of singers and musicians opposed an earlier version of the legislation, and the American Association of Independent Music, which represents many well-known indie labels, agreed with them.

Pandora has a good reason to want to cut costs, though one might argue the publicity wisdom of trying to do so by calling on Republicans to take money out of musicians' often already meager paychecks. On Thursday after the close of Wall Street trading, the company reported its fiscal 2013 earnings — and it still has never turned an annual profit, despite fourth-quarter revenue of $125.1 million.

As Pandora announced its earnings, the company also revealed that Joe Kennedy, its CEO since 2004, will resign once a successor is in place. As Reuters reports, Kennedy said in a conference call the decision was "pretty recent."

It isn't uncommon to see corner-office turnover at a company where a founder like Westergren still plays a strong leadership role. An online company of similar size, Groupon, whose co-founder Eric Lefkofsky is still executive chairman and the biggest shareholder, ousted its own CEO just last week. (He will earn more than fractions of a penny.)

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