Analysis Tech oligarchs aren’t supposed to say sorry. And no, Apple hasn’t formally apologized to the music community for demanding that it works for Apple for free, Apple still comes out of it with plenty of credit.
Ten days ago, the contracts for Apple’s new Spotify-ish streaming service leaked out, and they contained an unprecedented request. Apple said artists and rights owners would not be paid for music streamed during the service's first three months. During that time, the service will be offered for free to people, and then rise to something like ten bucks a month.
Typically, streaming pays almost nothing today – fractions of a penny. The segment numbers tens of millions of paying subscribers, and hasn’t achieved scale. But this, from Apple, was genuinely nothing: a big, fat zero. The story flew onto the business pages. Only bottom-feeding pirate websites used artists' work without paying them, and it looked like Apple was diving into the cesspit of file-sharers.
Indie labels expressed their discontent quite eloquently. “We struggle to see why rights owners and artists should bear this aspect of Apple’s customer acquisition costs,” the Beggars group wrote to musicians and their managers.
That’s the issue in a nutshell. If you’re opening up a donut shop, you may choose to sell donuts at a loss. But you swallow that cost yourself – it’s a launch cost. It isn’t ethically acceptable to demand that your donut supplier provide those donuts for free. Indie labels don’t generally have Swiss bank accounts and deep credit lines; they’re run on love in a hostile environment.
Apple’s June 30 launch date neared with the prospect of no music from the indie sector.
Within hours of the world’s biggest pop star weighing in on the side of the indies, Apple caved in. Taylor Swift livened up Sunday with a devastating open letter to Apple, explaining her music wouldn’t be on Apple Music.
By the evening, Apple’s content chief Eddy Cue was tweeting, and phoning reporters, to tell say the no-royalties period was scrapped. Artist will believe it when they see the new contracts arrive: the trial-period royalty may be lower than the regular royalty. But that’s still an epic turnaround – and Apple emerges looking better than anyone expected last week.
Apple clearly wants Apple Music to succeed – and many artists and rights owners want it to succeed, too. This is surprising on the face of it, given that Apple pays barely more than streaming services. (Again, we’ll wait for the first royalty statements before seeing whether this is true.)
The problem with streaming
If streaming is the future of music, it needs vastly more subscribers than it does today. Today, streaming doesn’t support any kind of music business: it’s affecting the production of music, and augurs a world in which only corporately sponsored art can flourish; a kind of feudal economy that depends on the kindness of oligarchs and multinationals.
Spotify and its clones use free ad-supported tiers to try and achieve this, and grow their subscriber bases. In turn this suppresses royalty rates. It looks like a vicious cycle for creators, particularly (as Taylor Swift pointed out) it acutely affects new bands, who get nothing from playing live anyway. Spotify seems religiously devoted to its free tier. Major labels with deep back catalogs can take the hit rather better.
So Apple’s entry into the market could affect the supply side positively in two ways: accelerating the growth of the market, and raising rates.
The Music•Tech•Policy blog has pointed out a third way, by comparing Cue’s response to Taylor Swift with Daniel Ek’s last year.
Swift withdrew her music from Spotify, and Ek’s response was brutal: if you don’t like our terms, the alternative is to be ripped off by pirates. This was the logic used six years ago that made Spotify so appealing to majors. But to artists, it’s merely adding insult to injury. It’s using the threat of criminal behavior to enforce a private contract. It was as subtle as a brick.
And barely more subtle than Google’s use of limited liability (so called “safe harbor” concessions) to remind artists that if they didn’t sign its draconian streaming contracts, it would use their music anyway – and just not pay them.
Both Ek’s response to Swift and Google’s casual brutality are pretty crass reminders that the marketplace is distorted by “safe harbor”, which was never intended to provide a Get Out Of Jail Free card for criminals, or incentive unethical behavior.
Today everyone’s talking about Apple’s flexibility, rather than its vast market power. It appears that Apple values the music makers – who generate the real demand for the “content services” that technology companies provide – as human beings. Not a unit item to be pared to as close to zero as possible.
It’s a refreshing change for a Silicon Valley company not to act cynically, but ethically. And who knows where it might end? An ethical internet that respects suppliers, whether they're professional or amateur creators and rightsholders? (You're a rights-holder if you've ever posted a picture to Instagram.)
Whatever next? ®