Terms of Apple’s iTunes Radio Payout to Record Labels Revealed

iTunes Radio was announced at WWDC 2013, a new streaming radio service made available for the company’s American customers (Canadians can try out the service using this tutorial). The Wall Street Journal reports it has seen terms of Apple’s iTunes Radio deals with music labels and has revealed how much Apple is paying:

Apple intends to pay royalties to labels based on a blend of how many times listeners hear their songs and how much advertising Apple sells, according to the terms, which were reviewed by The Wall Street Journal.

During iTunes Radio’s first year, Apple will pay a label 0.13 cents each time a song is played, as well as 15% of net advertising revenue, proportionate to a given label’s share of the music played on iTunes. In the second year, that bumps up to 0.14 cents per listen, plus 19% of ad revenue.

That compares to the 0.12 cents Pandora pays labels per listen on its free service. Apple is also offering music publishers more than twice as much in royalties than Pandora does.

Apple will not have to pay royalties if the following situations occur:

  • are within listeners’ iTunes libraries or might be on part of an existing owned album
  • ‘Heat Seeker’ trackers, part of ongoing promos in iTunes
  • are skipped before 20 seconds have elapsed
  • two songs per hour for any given user can also be excluded

Terms for smaller independent labels are identical but not exactly the same as deals reached with Universal Music Group, Warner Music Group and Sony Music Entertainment–all of which are expected to receive advance cash royalty payments from Apple.

Apple vice president Eddy Cue was formerly noted to have negotiated these complex terms with music labels “with grace,” as described by music industry executives.

Sources note the purpose of iTunes Radio from Apple’s perspective is not to generate ad revenue (via the company’s iAd network) like Pandora, but rather to get listeners to purchase more tracks through iTunes and help sell more iOS and Apple hardware.

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