Apple Music asks labels to accept reduced royalties

Apple is asking record labels to take a smaller cut of revenue from streaming, say sources close to the situation.

The deal with three major labels ends at the end of June, and renegotiations have begun for Apple Music and iTunes. 

Bloomberg reports that both sides have agreed to extend negotiations past the deadline if need be.

Apple is asking for the royalty rate to drop from 58% to 52%.

Record labels have not reacted with hostility to Apple’s offer. Both sides acknowledge it’s a win-win situation – Apple Music now has 27 million subscribers, and the decline of digital downloads on iTunes has slowed. 

In any case, Spotify recently also negotiated a discount with Universal Music (in return for high profiling its new releases and promising to increase its subscriber base) and expected to sign similar deals with Sony Music and Warner Music.

It dropped its royalty rate from 55% to 52%, which will save it US$100 million a year.

Spotify last week announced it has 140 million monthly active users and 53 million paying subscribers.

Similarly, during the Apple negotiations, the labels have also asked Apple Music to commit to growing its subscriber base, and to promote iTunes in markets like Japan and Germany where streaming has not had the same market penetration as in other territories.