Apple has reportedly sent terms to independent record labels last week concerning the launch of its online radio service and, according to The Wall Street Journal, Apple’s terms are more generous to the music companies than Pandora’s.
Apple plans to pay royalties to labels based on a few things: how many times users listen to a song and how much advertising Apple sells. For the first year, Apple will pay a label $0.13 every time a song is played, plus 15% of net advertising revenue that is proportionate to a label’s share of the music played on iTunes. During the second year, Apple will bump it to $0.14 per listen, plus 19% of ad revenue.
In comparison, Pandora pays labels $0.12 per listen on its free service. On top of that, Apple is offering music publishers twice as much in royalties compared to what Pandora offers.
There are certain cases where Apple won’t have to pay though. It won’t have to pay royalties for some performances of songs that listeners already have in their iTunes libraries or songs that might be on an album that the listener owns a part of. “Heat Seeker” tracks chosen by iTunes for special promotions are also excluded. Apple also won’t have to pay for songs that are skipped before the 20 second mark and it can also avoid paying royalties for two songs per hour for any given user.
The Wall Street Journal also said that independent label terms are similar to those granted to the three major record companies (i.e. Universal Music Group, Warner Music Group, and Sony Music Entertainment), which are expected to receive cash advances against future royalties.
The ad-free iTunes Radio service is expected to launch this fall (in the US) alongside iOS 7 and will function on iOS devices, Macs, and Apple TV.