We’ve seen a lot of discussion of Apple’s reported payment of over $100 million for the right to launch its iTunes Match as part of iCloud on Monday. The smart money says that this high payment serves as an advance against the fees Apple must pay in order to keep labels happy even as iCloud streams even non-purchased music to music fans, and we’re inclined to agree.
We don’t expect to hear any explanation out of Cupertino regarding the advance, but a $100 million payment is interesting. Maybe not as interesting as the $1 billion Sean Parker talks about in The Social Network, but interesting nonetheless.
Apple’s $100 million went entirely to the major labels — Warner Music Group, Sony Music Entertainment, EMI Group, and Universal Music Group. No indie labels appeared to be included — and this at a time when the head of indie consortium Merlin Charles Caldas claims independent labels have more of a digital presence than ever.
Even the National Academy of Recording Arts and Sciences’ Grammy Awards, long seen as a haven for major label artists, is changing its tune. The last two Grammy Awards for Album of the Year have come from independent artists (Taylor Swift and Arcade Fire). Swift’s Fearless went platinum 31 times internationally and will surely get thrown around on Apple iCloud, but Big Machine Records was mute on the subject when Evolver.fm asked them about iCloud-related compensation.
No serious music fan would consider paying for iCloud if it only contained music from the big four labels, and indeed, Apple claims that iCloud will include the 18 million songs currently listed in the iTunes music store — a significant portion of which are from indie bands and labels. Apple must have some sort of plan for getting indies’ permission, although it has yet to do so, from what we can tell, despite promising consumers they will be able to store that music.
Understandably, the independents aren’t ecstatic about this, though Merlin is maintaining an admirable poker face. Evolver.fm’s initial inquiry to Merlin returned a statement attributed to Caldas indicating that the organization does expect Apple to pay them eventually (remember, iCloud doesn’t even launch until this fall):
“Apple is the most experienced player in the digital music space and has long understood the value of independents to the success of iTunes. We have absolutely no reason to believe either that Apple (unlike other services) has not materially recognised the integral value of independents to their new service, or does not plan to pay them fairly and equitably.”
What that means in the here and now is unclear, but “plan to pay” means Apple has yet to pay indies for iCloud. This is the way of the world; the same thing happened with MySpace Music and other new music services. The majors, with their large catalogs and resultant negotiating power, get paid first. (Whether any of that $100 million will trickle through to their artists is another matter.)
Major labels can sit down with Apple and demand this large payment to cover vast swathes of music, but what do you do if you’re Arcade Fire?
For now, Merlin seems happy. Caldas repeatedly stated in a conversation with Evolver.fm that “most labels in the world — preexisting of Merlin — have direct and existing deals with Apple” and Merlin does not “get to see other people’s deals, and those deals are always under confidentiality, as any business deal would be.”
Caldas also reinforced that “Merlin has been very vocal in the past about any services that aren’t treating independents fairly,” saying, “Merlin was particularly vocal throughout the launch of MySpace Music [and] around the fact that Rdio chose to launch without licenses of independents on board. We’ve openly taken action against Grooveshark, which has been using music without independents’ permission. When services clearly aren’t [treating independents fairly], labels don’t tend to be quiet about that.”
Merlin’s actions concerning Grooveshark and Rdio suggest that the organization has a track record of picking the right fights, but the game’s changing: Apple paid the majors (and, one would hope, their artists by extension) for music that was never purchased in the first place. If this approach becomes dominant, traditional royalty checks could continue to dry up even as overall music revenues increase. Unfortunately for indie labels, they appear to be an afterthought on that front, at this point anyway, despite their Grammy Awards.
(Image courtesy of Flickr/Man Alive)