Apple Music caused furore on Friday (April 16) when it made some proud claims about its payouts to artists and songwriters – and, by association, some potentially damning claims about Spotify‘s equivalent distributions.

Those claims all appeared in an email newsletter sent by Apple to the industry and artist community. This newsletter has now been obtained by MBW and is re-published below.

Apple doesn’t explicitly mention Spotify at all in the letter, although you wouldn’t guess it from the subsequent media coverage.

That’s especially true of certain headlines connected to the following assertion from Apple: “Our average per play rate is $0.01.”

The Wall Street Journal broke the story of Apple’s letter on Friday, and within its report noted that: “Apple’s penny-per-stream payment structure… is roughly double what Spotify… pays music-rights holders per stream.”

This take (and it’s a take that many other media outlets whipped up in headlines) should come with a neon-lit caveat: no major streaming service in the world actually pays out on a per-stream basis.

Instead, recorded music payouts from Spotify and Apple Music are figured out, by and large, via this two-step method:

• (i) A service earmarks a total royalty pool of money, calculated as a certain share of its net revenues that month. The % of this revenue share is previously agreed with labels and/or distributors;
• (ii) This royalty pool is then divided and paid out to labels and their artists based on their market share of streaming volume.
• For example: if Universal Music Group acts claimed 40% of all plays on Apple Music one month, and UMG had agreed a 35% net revenue share, Apple Music would pay Universal Music Group 35% of 52% of its net revenue for the monthly period.

Comparing how such a payout works out on a per-stream basis, then, is troublesome for one reason above all others: It risks making platforms with lower audience engagement look more generous towards artists/labels, and services with higher audience engagement look less generous.

In other words: if music fans stream more on a service in a given month, its per-stream payout will go down; if music fans stream less in a given month, its per-stream rate will go up.

Let’s get back to what Apple actually wrote in the letter, rather than contestable interpretations of it.

Below, you’ll find last week’s full letter from Apple Music.

In a bid to combat some of the misinformation flying around, MBW has added our own commentary, in a bid to bring further clarity to Apple’s claims.

One particularly interesting thing about Apple Music’s letter is that the platform suggests it’s examined the possibility of following SoundCloud with a user-centric/”fan-powered” royalty payout model, but concluded this would result in “limited redistribution of royalties with a varied impact to artists”.

Another big talking point: Apple claims that it pays royalties to every single record labels based on the exact same revenue share rate (52%). However, it also suggests other leading streaming services (guess who?) pay different rates to different labels – with majors getting a higher figure than some indies.

Once again, read Apple’s newsletter in full below – with MBW’s added commentary in red – and make your own mind up.

Apple Music’s latest newsletter: Part one

This update, which is part of a new series of newsletters, looks at how creators earn royalties from Apple Music and how these have grown over time.

We believe in the value of music and paying creators fairly for their work. Since we launched the iTunes Store in 2003, we have helped millions of artists and songwriters make a living from music. As the discussion about streaming royalties continues, we believe it is important to share our values. We believe in paying every creator the same rate, that a play has a value, and that creators should never have to pay for featuring.

We pay the same 52% headline rate to all labels.

While other services pay some independent labels a substantially lower rate than they pay major labels, we pay the same headline rate to all labels. This means artists can distribute music however they like, knowing Apple Music will pay the same rate. Sign with a label or stay independent; we believe in the value of all music.

We pay the same headline rate for all compositions.

Without songwriters, there wouldn’t be recordings. That is why we have paid every publisher and licensor the same headline rate within each country. It’s also why we have invested millions to optimize publishing operations to ensure songwriters are paid as quickly as possible.

MBW’s take: One revelation from this part of the letter is that Apple has now publicly confirmed that it pays a 52% net revenue share to recorded music rightsholders (“all labels”).

This is the exact same net revenue share that Spotify pays the major labels today. Spotify renegotiated its headline rate down from 55% to 52% in 2017; Apple Music appears to have done the same in its last negotiating round, which fell in the same year. 

(Payments to music publishers and songwriters are additional to this 52% share; overall, they tend to claim another 10-13% of each service’s net revenue. That said, Spotify is currently appealing a rate rise for publishers and songwriters in the US, alongside Amazon, Google, and SiriusXM. Apple Music has declined to appeal this rise.)

Apple’s main contention in the section above is one MBW will be digging into again: that other leading streaming services don’t offer one simple net revenue % rate to all labels, whether independent or major.

In the case of Spotify, we hear, this is a complicated situation, with some indies claiming they receive a lower effective (rather than headline) rate than 52% due to certain contractual deductions and discounts.

Apple Music’s latest newsletter: Part Two

Our average per play rate is $0.01.

While royalties from streaming services are calculated on a stream share basis, a play still has a value. This value varies by subscription plan and country but averaged $0.01 for Apple Music individual paid plans in 2020. This includes label and publisher royalties.

We do not pay a lower royalty rate in exchange for featuring.

Apple Music’s team of global tastemakers hand-curate 30,000 editorial playlists. These tastemakers select music based on merit and we do not ask anyone to accept a lower royalty rate in exchange for featuring. The same is true for Apple Music’s personalized playlists and algorithmic recommendations.

MBW’s take: We’ve dealt with why a ‘per play’ rate can be misleading earlier in this article, but there are a couple of other things worth mentioning here.

First: Apple has been careful to qualify that $0.01 per stream is the average payout from its individual paid plans – which means it’s kept its discounted bundles (like its $14.99-per-month Family subscription for up to six people; or its multimedia Apple One subscription; or its $4.99-a-month Student subscription) out of the calculation. 

Second: Apple has included both label and publisher royalties within this $0.01.

1 per-stream figure, which further complicates the picture. Remember: the 52% headline rate mentioned in the first section of Apple Music’s newsletter only applied to labels / recorded music.

Perhaps more interesting than all of this: Apple’s “We do not pay a lower royalty rate in exchange for featuring,” line is a clear attack on Spotify’s ‘Discovery Mode’ feature, which enables artists and labels to accept reduced royalty rates in order to improve the frequency of their tracks appearing via Autoplay and Spotify Radio. 

Apple has its cheerleaders on this point. Last month, some of the world’s largest indie labels co-signed a 10-point plan from trade body IMPALA which lambasted certain streaming services for offering “privileged treatment in algorithms or other features” for commercial gain. Wrote IMPALA: “This is payola, and has no legitimate place in improving viability and opportunity for creators.”

Apple Music’s latest newsletter: Part Three

As a result of our commitment to these values, Apple Music paid out royalties for more than 5 million recording artists around the world in 2020, over 1 million more than in 2019. The number of recording artists whose catalogs generated recording and publishing royalties over $1 million per year increased over 120% since 2017, while the number of recording artists whose catalogs generated over $50,000 per year has more than doubled.

Like others, we have looked at alternative royalty models. Our analysis has shown that they would result in a limited redistribution of royalties with a varied impact to artists. Per play rates would cease to be the same for every play of a song. But more importantly, the changes would not increase what all creators earn from streaming. Instead, these changes would shift royalties towards a small number of labels while providing less transparency to creators everywhere.

At Apple Music, our focus remains on artists and songwriters and finding new and innovative ways for all creators to make a living from music. With Apple Music, music fans around the world enjoy an uninterrupted ad-free experience while knowing their data is kept private and used only to enhance the overall music experience for them.

MBW’s take: Apple’s numbers here offer a useful comparison with Spotify, whose new Loud & Clear website recently revealed the following: the number of recording artists whose catalogs generated recording and publishing royalties over $1 million per year on its service increased by 90% from 2017 to 2020.

Apple, obviously, says that its equivalent percentage figure is higher (+120%) on its platform.

That being said, Apple Music hasn’t given us a public update on its total global subscriber number since way back in June 2019, when Eddy Cue revealed it stood at somewhere over 60 million (including paid triallists). Spotify, which unlike Apple Music benefits from running an ad-funded (‘free’) tier it uses as a ‘funnel’ to upsell users into Premium, had 155 million at the close of 2020.

At the time Eddy Cue made that announcement, Apple Music’s global subscriber base was growing by around a million each month. If it kept up that pace, it would be at around 80-85 million subs today.

Also: Let’s not a key stat slip here. Apple says that it paid royalties to over 5 million artists last year  – a figure that grew by over a million in 2020 vs. 2019.

Clearly, the DIY artist explosion is showing no signs of slowing down, on any of the leading streaming platforms.Music Business Worldwide