Apple's (NASDAQ:AAPL) new music streaming service, Apple Music, will land later this month, giving users yet another avenue for music streaming and provide the music industry with another shot at making money in the age of predominantly free streaming. While Apple already spilled most of the details about the new service at its Worldwide Developer Conference last week, new information surfaced this week on just how much Apple will pay the music industry to be able to stream songs.
According to Re/code, Apple Music will pay 71.5% of its $10 per month subscription fee to the music industry. This won't all go to songwriters and performers of course, but will go to the music publishers and record labels, which will then subsequently trickle down to the artists.
The percentage is just slightly higher than the U.S. music industry standard of 70% that Apple Music's key competitor, Spotify pays. If that sounds like a sweet deal for the music industry (Who wouldn't a higher percentage, right?) there's also a bit of bad news. Apple won't pay a dime for music played during the free, three-month trial subscriptions Apple Music is doling out.
If it's broken, fix it
Of course giving away free trials for new services is nothing new, but not paying any royalties to music publishers for three months while Apple Music users play as many songs as the like certainly is. So why would the music labels be on board with this? Because they're basically fed up with the current freemium models.
While Spotify's goal has always been to turn freemium subscribers into paid ones, that hasn't always worked out. Spotify has a respectable 20 million paid subscribers, while its free service boasts 55 million users. Music labels get paid less from the freemium service, which has made them unhappy and looking for a better alternative.
Universal Music Group Chairman Lucian Grainge said in November that, "ad-funded is not a sustainable business model." Similarly, Sony Music CEO, Doug Morris, recently told Hits Daily Double that, "Why should anyone pay for anything if they can get it for free? In certain instances, it's worth a discussion. But in general, free is death."
So while Apple won't pay anything to the music industry during three-month trial subscriptions, the company is betting that it can convert more users to its paid service if it doesn't have a free, ad-based option like Spotify. By not offering a free option (after the three months) the music industry could, in theory, make more money from Apple Music because more users would actually, you know, pay for music.
This is a bet for everyone
While the potential for all of this sounds great, it's nowhere near a definite that Apple will be able to convert more users to paid memberships than Spotify. But right now Apple and the music industry need to try alternative avenues to get users to pay for music again.
Music labels realize their business can't withstand the long haul under freemium models, and Apple is looking to reverse the tide of slowing digital music downloads. In all of 2014, its music sales fell by 14% worldwide.
Once Apple Music gets off the ground on June 30 we'll start to know more about whether or not Apple has a viable option compared to the competition. But we won't know for a few more months after that whether or not users will stick around and pay the $10 per month price tag. But it's clear that both the music industry and Apple need that to happen -- and soon.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.