Coverage: Apple bows to Taylor Swift

Many headlines over the weekend said that Apple caved to Taylor Swift over paying artists royalties. But the second-day coverage largely shifted to say the deal isn’t such a blow for Apple after all.

The Wall Street Journal had this story by Ethan Smith and Daisuke Wakabayashi saying the money involved is “insignificant”:

Taylor Swift scored one against Apple Inc. Sunday in a battle over royalty rates and free music streaming, but the real significance of her feat will turn on still-undisclosed details.

Apple, meanwhile, may not be as bruised as it first appears: The money involved is insignificant for the tech giant, and the company’s rapid change of heart may win some goodwill in the entertainment industry.

Apple abruptly reversed course Sunday night, retreating from a plan to not pay royalties to artists when users sign up for a three-month free trial of Apple Music, its subscription service set to debut on June 30.

The switch came soon after the hugely popular singer, in an open letter to Apple, blasted the no-royalty plan as “shocking, disappointing,” adding her voice to a chorus of complaints from artists and producers. “We don’t ask you for free iPhones. Please don’t ask us to provide you with our music for no compensation,” she wrote in her blog on Tumblr.

Issie Lapowsky wrote for Wired that Apple earned some good press for its move:

“We never looked at it as not paying them,” Cue told Billboard in an interview today.

“We had originally negotiated these deals based on paying them a higher royalty rate on an ongoing basis to compensate for this brief time,” he said. “But when I woke up this morning and saw what Taylor had written, it really solidified that we needed to make a change.”

And yet, the only change Apple is making is paying artists what they should have been paid all along. If Apple were really so pro-artist, would it have instituted a policy that withheld royalties from artists in the first place? It doesn’t seem surprising that artists would balk at the prospect of not getting paid. But Apple’s roots in the music industry run deep—all the way back to the birth of the iPod. It seems reasonable to believe that Apple thought it could get away with not paying because it didn’t think anyone would be bold enough to speak out against a company that is already such a force in music. And if anyone did protest—props to you, T Swift—the decision would be easy enough to reverse—and might even score Apple Music some good press.

But Apple isn’t really different in its model from rival Spotify, which also pays lower royalties for its free service, meaning it doesn’t actually have much leverage, Nilay Patel wrote for The Verge:

It’s only when the services have meaningful leverage that artists back down; Swift hasn’t said word one about YouTube, the most popular ad-supported streaming service in existence, because taking her videos of off YouTube would be a disaster for her fans. But Apple can’t afford to have Swift taking shots at Apple Music, while Swift can just sit back and let her army of ultra-devoted fans actually buy her albums from iTunes proper.

In fact, it’s curious that Apple’s not overtly taking advantage of its commanding lead as a music retailer to let artists like Swift window their releases against demand. Hardcore fans might buy new records on their release days, while others might wait for them to hit the streaming catalog. Singles might be made available to buy first, or to stream for a while ahead of wider release as a promotional tactic. Apple’s already taught millions of people to pay for music on iTunes, but instead of using streaming to support and expand music sales, it seems to be running two distinct services whose overlap hasn’t been made entirely clear. To be fair, that’s Spotify’s problem as well: the company’s foolishly religious stance on free streaming means that it hasn’t offered any particularly innovative new solutions to the business of selling music to artists beyond yet more playlist types.

Mathew Ingram wrote for Fortune that the balance is also between Apple and record labels was also at play:

“Apple wants to kill free because then it can win vs. Spotify,” this source said. “But the labels don’t want to be back in a place where they are beholden to Apple and they get dictated to — they want three or four strong players so they can play them off against each other.”

Apple would very much like the labels to go all-in with its service and cut out Spotify, and it’s trying hard to convince them that they should do so—in part by appealing to their dislike of Spotify’s permanently free tier (something Taylor Swift has also come out against in the past, arguing that it permanently devalues music). Still, the labels know that free is probably always going to be an option. In fact, many of them like having free because it is a low-cost marketing tool, the way radio used to be. Not to mention they are happy to have at least one strong competitor to curtail Apple’s power as well.

There’s an even larger, long-term picture that gives the record labels nightmares, and that’s the prospect of Apple cutting them out of the picture altogether—in other words, going to individual artists like Taylor Swift and striking a deal with them directly, to market them and distribute their music. “Ultimately, they know Apple wants to go directly to artists and cut deals with them,” said the senior music-industry executive. “The labels aren’t the fastest moving but they are not dumb. So they need something to blunt Apple’s power.”

So, what at first looked like a concession is actually a shrewd PR move and a move that will keep musicians and their labels happy for now. Apple, while not the first player in the streaming industry, is quickly trying to catch up and surpass its competitors. And knowing Apple, it’s likely to succeed, despite having to shell out a little more for Taylor Swift albums.