Report: Apple's iTunes Radio terms more generous than Pandora

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Apple (NASDAQ:AAPL) has begun circulating financial terms of its forthcoming iTunes Radio streaming music service to independent record labels, with The Wall Street Journal reporting that many of the stipulations are more generous to labels than their current agreements with rival Pandora Media.

Initially rolling out in conjunction with the new iOS 7's overhauled Music app, iTunes Radio enables listeners to access more than 200 Apple-curated featured stations or to create their own stations based on favorite artists and songs. Users may also share stations with friends. Any song played through iTunes Radio may be purchased with one click from Apple's iTunes digital storefront, the music business' largest source of digital revenues with an estimated $4.3 billion in download sales in 2012.

iTunes Radio will pay royalties to labels based on how many times listeners hear their songs and how much advertising Apple sells, the Journal states. During the first year the service is live, Apple will award label partners 0.13 cents each time a song is played, as well as 15 percent of net advertising revenue, proportionate to a given label's share of the music played on iTunes Radio. In year two, label payouts increase to 0.14 cents per listen and 19 percent of ad revenue. Some people familiar with Apple's thinking said ad revenues may not be significant, however, explaining that the computing giant is looking to monetize iTunes Radio more by encouraging consumers to purchase songs they like from the iTunes storefront, in turn driving sales of iPhones, iPods and other hardware.

By comparison, Pandora pays labels 0.12 cents per listen on its free service. Apple is also offering music publishers more than twice as much in royalties as Pandora. Pandora founder Tim Westergren told the Journal it is unfair to compare Apple's royalty rates with Pandora's because their respective digital radio services contain different features that could trigger different royalty payments. "It's apples and oranges," Westergren said in reference to the two services.

Apple will not pay royalties for some performances of songs that are already included in listeners' iTunes libraries, or songs on an album that a listener owns some part of. So-called "Heat Seeker" tracks selected by iTunes editors for special promotions are also exempted. Moreover, Apple is not required to pay for some iTunes Radio songs skipped by listeners within the first 20 seconds, although royalties do kick in once a user has skipped three or more songs within an hour.

An Apple spokesperson declined to comment.

Rights management organization Broadcast Music Inc. recently filed suit against Pandora Media, petitioning the Federal Rate Court to set royalty fees for all music played across the streaming music platform. The suit follows on the heels of Pandora Media purchasing South Dakota terrestrial radio station KXMZ, a move to capitalize on reduced performance royalty fees available to broadcast radio stations and Internet radio services operated by owners of broadcast outlets.

In November 2012, Pandora filed a lawsuit in a federal district court seeking a license with terms available to Internet radio services under a settlement between the Radio Music Licensing Committee and the American Society of Composers, Authors and Publishers, which determined that each licensee would pay a royalty of 1.7 percent of their gross revenues. By comparison, Pandora handed over 4.1 percent of total 2012 revenues to its performance rights partners. Music publishers told Billboard that Pandora is "trying to turn that [RMLC/ASCAP] deal on its head" by acquiring KXMZ.

"Pandora's stunt makes a mockery of the performing rights licenses and the rate court process," BMI said in the lawsuit, filed in the U.S. Southern District Federal Court in New York. In a separate statement, the organization--which represents more than 600,000 songwriters, composers and music publishers--said it is asking the court to set "reasonable, market-driven fees for Pandora" after direct negotiations with the company came to a halt.

Earlier this week, Cracker frontman David Lowery published a much-discussed Trichordist essay revealing that Pandora users played the band's song "Low" more than 1.15 million times during the first quarter of 2013, generating songwriting payments of just $16.89--"Less than I make from a single T-shirt sale," Lowery writes. "Low" earned Lowery $1,522 from U.S. terrestrial radio and $181 from Sirius XM during the same period. "I urge all songwriters to post their royalty statements and show the world just how terrible webcasting rates are for songwriters," he writes. "The revolution will not be webcast."

For more:
- read this Wall Street Journal article

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