LOS ANGELES — Apple’s about-face on paying royalties for songs during a three-month free-trial period for its new music service was a symbolic victory for superstar Taylor Swift and other artists, and a shrewd business move by Apple, at a time when the streaming phenomenon is causing major changes in the music industry.
The olive branch extended by Apple comes as music is increasingly being consumed on streaming services such as Spotify and Deezer, to the detriment of album sales and iTunes downloads. This is heightening tensions between artists, labels and service providers over who gets paid and how much.
Apple had already agreed to share revenue from the new Apple Music service once users start paying a $10-a-month subscription fee for the service, which it plans to launch June 30. But the technology giant hadn’t planned to pay artists and labels directly for the use of their music during the free, 90-day trial period that it’s offering to get fans to try the service.
That changed quickly Sunday, after Swift posted an open letter to Apple opposing the lack of royalties during the free period and declaring she would be withholding her latest album “1989” from Apple Music because of it.
Apple senior vice president Eddy Cue reversed the company’s proposed contract terms, which had gone out to thousands of independent labels, including Swift’s Big Machine Label Group, after the technology giant reached a deal with major label groups Universal, Sony and Warner in early June.
The company needed to avoid a “PR nightmare” and extinguished the firestorm that Swift had created, said Daniel Ives, tech stocks analyst with FBR Capital Markets.
“They needed to handle this perfectly,” Ives said, because Apple is facing an uphill battle against competing services such as Spotify that are well-established. “There can be no snafus or speed bumps, from the artists’ perspective, or any type of consumer backlash.”
Apple hasn’t publicly revealed how much it will pay in royalties for the free streaming period.
Cue declined to offer financial details with The Associated Press on Sunday. He said the payments will be based on a different formula than the company negotiated for sharing subscription revenue because Apple won’t be collecting revenue from the 90 days of free streaming.
Instead, Cue said, royalties for the free streaming will be based on a standard amount for each time a song is streamed.
Jeff Price, the CEO and founder from royalty collection firm Audiam, said the free-period royalties could amount to about $25 million per month in the U.S. alone if Apple Music pays the same as Spotify did in December, according to publishers’ data.
Ives noted the cost to Apple is “not even a rounding error” for a company that made $39.5 billion in profit and $182.8 billion in revenue for its last fiscal year.
While Apple Music doesn’t have any subscribers yet, compared with the 4.7 million Spotify had in the U.S. then, its global launch in 100 countries could change that. Still, Price says the gesture will probably be worth it for Apple.
“It got them an unlimited amount of public goodwill and artist goodwill,” Price said.
Some artists did praise Apple on Monday for its decision, while many more cheered Swift for taking her public stand. Rocker Elvis Costello called Swift “our future president” on Twitter and added, “You tell ’em, Girl.”
