Apple’s iTunes Radio terms with independent record labels have been a mystery until now. Since iOS 7 hasn’t been released, the service has yet to be used on a large scale, and labels aren’t getting many royalties as a result. However, The Wall Street Journal has revealed the terms for iTunes Radio after the company sent them to each label. The report shows Apple is currently paying out 0.13 cents to record labels every time a song is played, in addition to 15% of the net advertising revenue.
After iTunes Radio is active for one full year and Apple signs a contract for a second year, labels will receive 0.14 cents per listen and 19% of ad revenue. This is a good deal for the record companies as Pandora—one of the leading streaming music services—is currently paying record labels 0.12 cents per song. There are several restriction in place for the deal, such as Apple not having to pay any royalties if a song is already in a user’s library or if a user skips a song before listening for 20 seconds. Apple can only do this for two songs per hour, meaning these restrictions are lifted briefly and are reapplied at the top of each hour.
Currently, there is no deal in place for Apple to pay royalties on songs used for advertising purposes, as iTunes Radio does play a 15-30 second ad after several songs. Apple is not isolating indie record labels in any way with these deals, as Universal Music Group and other labels have signed very similar deals. By doing this, Apple will be able use the allure of a streaming music service with a variety of songs to sell more iPhones. The company will also be benefiting greatly from increased iTunes Music sales, despite the fact that they are paying more royalties than Pandora.