Apple has sent out the terms of the iTunes Radio deals it hopes to make with independent record labels, and those terms will reportedly mean labels can earn more profit from Apple's music subscription service than they currently do from iTunes Radio rival Pandora.
The Wall Street Journal claims to have seen the licensing document sent out by Apple last week that details the per-play rates, royalties and ad revenue the company intends to give labels in return for their songs. It is also said to include hints that weather, sports and news programs will be coming to iTunes Radio in the future.
According to WSJ, Apple is planning to pay royalties to labels based on a combination of the number of times listeners hear their songs and the amount of advertising Apple sells.
This means that, in the year following iTunes Radio's launch this autumn with iOS 7, Apple will pay a label 0.13 cents, which equates to around 0.1 pennies, every time a song is played, plus 15 per cent of the net advertising revenue depending on the label's share of the music played through the service. This will increase to 0.14 cents per listen in iTunes Radio's second year, with 19 per cent of ad revenue.
That's "more generous to music companies" than Pandora, says WSJ, highlighting that the iTunes Radio competitor pays labels 0.12 cents per listen, and half as much in royalties than Apple plans to pay.
Labels won't receive royalties for some songs that are already found in listeners' iTunes libraries, or songs that come from albums partially owned by the listener. In addition, WSJ says "Heat Seeker" tracks that have been selected by Apple for special promotions in iTunes will be exempt from royalties. Similarly, if a listener skips a song within the first 20 seconds, Apple will not have to pay royalties to the label. This exemption, however, will be limited to two songs per hour, per user.
According to WSJ, these terms are "similar but not identical" to the deals Apple has made with Universal Music, Warner Music and Sony – the three major record companies. These companies are expected to receive cash advances.
People familiar with the matter told WSJ that they believe the company is aiming to use iTunes Radio to encourage listeners to buy the tracks that they hear while using the service from the iTunes Store. In turn, this could lead to more iPhone and iPod sales.