With Apple’s iTunes Radio soon to debut in iOS 7 and OS X, many people in the recording industry are looking closely at how much money they stand to make from this new service.
As the Wall Street Journal recently reported, Apple will be paying higher royalties than Pandora, but not by much: a streamed song is worth $0.0012 on Pandora, and it’s a whopping 8.5% more on iTunes Radio: $0.0013. But Apple will also be sharing some advertising revenue with record labels: 15% of that money will go to the record labels. And these rates will go up after the first year to $.0014 and 19%.
According to the Wall Street Journal, there are also a number of cases where Apple won’t pay anything:
Apple won’t have to pay royalties for some performances of songs that are already in listeners’ iTunes libraries, or songs that might be on an album that a listener owns just part of. Similarly, “Heat Seeker” tracks selected by iTunes for special promotions, are also exempted. Apple also doesn’t have to pay for songs listeners skip before 20 seconds have elapsed. The company only gets to avoid paying royalties for two songs per hour for any given user.
But what does that actually mean? If you do the math, you can see that this is still a very small amount of money. Leaving aside the ad revenue, because there’s no way to know how much this will represent (and because iTunes Match subscribers won’t hear ads, and no ad revenue will be shared for these users), you need 5,383 streams to make $7, or the amount a record label gets from selling an album on the iTunes Store. In other words, take a standard ten-track album. A listener would need to listen to the album 538 times for a record label to get the same amount of money they would from selling an album.
Of course, iTunes Radio isn’t like Spotify, which lets you choose to listen to an album. It’s apparently more like Pandora, where you listen to “stations,” which play a variety of songs, but never an entire album. And you can’t request a song on iTunes Radio either.
One advantage that iTunes Radio has, according to what Apple has presented, is that it will drive listeners to the iTunes Store if they like a song and want to buy it. So record labels are hoping that, instead of streaming income, they’ll get income from sales of songs and albums. And Apple is most likely hoping the same thing will happen: that iTunes Radio is less about royalties and more about getting people to buy more music on the iTunes Store.