Apple Music has cut a licensing deal with Warner Music Group, claims Bloomberg. The deal comes as Apple’s first agreement with a major music label only two years after launching its on-demand music service. Under the terms of the deal, Warner Music will offer Apple Inc. (NASDAQ:AAPL) its artist catalog, which includes Ed Sheeran, the Red Hot Chili Peppers and Bruno Mars, for iTunes and Apple Music.
Why did Warner Music accept a lower rate?
The deal is also special for Apple in the sense that the iPhone maker plans to pay record labels a smaller percentage than what it paid before, according to Bloomberg. The media outlet also says that the new deal will help Apple strike similar deals with other big labels such as Sony.
There were some doubts as to why a major label like Warner would accept a lower percentage. The answer is that unlike other music service providers, Apple Music does not have free listening options. Even during the three-month trial period, the Cupertino-based company paid royalties to musicians (although only after being pressured to do so); therefore, labels are believed to be soft on Apple during negotiations.
Spotify also needs to be given some credit for Apple’s new deal with Warner Music. Earlier this year, Spotify negotiated a rate cut from Warner Music Group, a drop from 55% to about 52%, dependent on subscriber performance. Warner also may have entered into a deal with YouTube on similar conditions, notes AppleInsider. On-demand streaming services are growing into a major source of revenue for the U.S. record industry. However, Universal is still reluctant to enter into any deal with Apple or any other music streaming company.
Apple Music has come a long way since it was launched two years ago. At the time, the company was willing to pay more money because it believed that content would play a major role in churning iPhone sales. Once users get hooked to iTunes and the iPhone, they are less likely to switch. Now Apple wants to develop Apple Music into a profitable business that can grow on its own, notes PhoneArena. Thus, the need to cut costs arises.
Apple cancels London Music festival
In related news, Apple canceled its annual London Music festival, which in the past has seen some of the biggest artists perform, such as Foo Fighters, Ed Sheeran and Alicia Keys. Apple first hosted the show in 2007. At the time, it was called the iTunes festival, but in 2015, it was renamed as the Apple Music festival.
The cancelation of the show comes at a time when Apple is more concerned with creating its own content and hosting music, TV and films to stream and buy, notes The Guardian. Its recent original TV series were Carpool Karaoke and Planet of the Apps. Going forward, the company is looking to create its own music-themed content. Apple probably hired Sony television executives Jamie Erlicht and Zack Van Amburg to help develop shows for this content.
On Wednesday, Apple shares closed down 0.1% at $161.91. Year to date, the stock is up almost 40%, while in the last year, it is up more than 50%.