UPDATE: Digital Music News has obtained contract details for Apple Music, revealing that the company will pay out 58 percent of subscription revenue to rightsholders, below Spotify's 70 percent and Tidal's reported 72 percent (including publishing rates).
The crowd of software developers in San Francisco's Moscone Center roared when Apple chief executive Tim Cook declared that the company's new music service will "change the way you experience music forever." Apple Music, which will launch in the U.S. later this month with an on-demand streaming service, a curated radio station with experienced DJs and a MySpace-style platform for artists to share their own work, will be what new Apple music exec Jimmy Iovine calls an "ecosystem."
"Music industry's a fragmented mess," Iovine, who with Dr. Dre sold Beats Electronics to Apple last year for $3 billion, said Monday morning at his first Worldwide Developers Conference keynote. "You want to stream music, you can go over here; if you want to stream some video, you can check some of these places out; you want to follow some artists, there's more confusion for that. So I reached out to Tim Cook and [veteran Apple exec] Eddy Cue and said, 'Guys, can we build a bigger and better ecosystem with the elegance and simplicity that only Apple can do?'"
But rival streaming companies were not so impressed. "Oh OK," Spotify's Daniel Ek wrote in a since-deleted tweet, while a top Rhapsody exec declared himself "flattered" by Apple's "virtually identical service." Rdio put out a press release parodying Apple's famous 1981 "Welcome, IBM" personal-computer ad with "Welcome, Apple."
Apple, though, has a way of taking over existing businesses and turning them into essential consumer products – MP3 players had been out for several years before Apple introduced the iPod. In a conference room overlooking the city, Iovine and Cue sat on couches – Iovine with his legs over the armrests – for a post-keynote interview with Rolling Stone.
I noticed you didn't mention the word "streaming" very often, if at all. Was this strategic, along the lines of replacing the word "MP3 player" with "iPod"?
Cue: To be fair, I did use the word 'stream' once. I said, 'You can search and stream the billions and billions of songs from iTunes.' We don't have anything wrong with saying that. It's just — we're not a streaming service. That's not the way we think of ourselves. We think of this as a much bigger product that has a lot of features of it, of which a music subscription or streaming service is one of those.
How challenging was it to convince the labels to get to $15 per month for the family plan, and a three-month free trial period?
Cue: There's lots of negotiations that go on with all of that. We focused our energy on one thing with regard to pricing: family plan. That's all I cared about. And the reason for that is $9.99 for the price of the subscription, $8.99, $10.99, is in the ballpark of the right thing: the price of an album.
To me, the real opportunity was when I looked at my family and I said, "I've got a spouse. I've got three kids. There's no way I'm ever buying a music subscription service for the five of us. It's just not going to happen." So we wanted to do something really great for families... It wasn't easy. We had to convince the labels it was in their best interests, too.
Do you currently have licensing deals with all three major record labels? Some reports said last week that you did not.
And all the major independent labels?
Cue: Obviously we did the deals with the major labels and we've done some with a few of the major indies. Now that we're live and we're going around talking about it, we'll go after everybody around the world. And this is something we've done many times. Even in the original iTunes Music Store, we never did a deal with the indies — we actually launched with all the [major] labels... We've got the next three weeks to complete this and get those done.
Spotify, Rhapsody and Rdio responded to the Apple Music announcement with variations of, "This is what we do already." Can you respond to that? How will Apple be revolutionary in a space where everybody has the same songs and the same technology?
Cue: I honestly haven't seen it, because I've just been a little busy. Again, we spent all of our time worrying about what we're doing. I can't control what others do or anything else from that standpoint. I don't think anybody else is doing what we're doing, so let's start with that.
Iovine: If we didn't think there was a hole, we wouldn't do it. Apple doesn't need to practice.
"If you get 100 million streams on a song and you're only being paid on 20 percent, the check's not going to look good." - Jimmy Iovine
Regarding "a hole" in the market, the famous story about Beats headphones is you recognized people were listening to expensively made music on tinny earbuds...
Iovine: And computers. Not Apple, but most computers were made with the speakers facing the table. It's true! The hardest thing we had to do at HP – the first thing we had to do was get the speakers to face up.
In that vein, what hole does Apple Music fill?
Iovine: The hole is service. People need service — great service where music is concerned.
Streaming companies, even Spotify, don't seem to be great at generating revenue. How does Apple change that equation? Or does it absorb the business as loss leader?
Iovine: Well, first you have to scale it. And if 80 percent of it is free, it's hard to have a business model like that.
A lot of artists complain about their compensation from streaming services.
Iovine: A lot of artists are confused. If you get 100 million streams on a song and you're only being paid on 20 percent, the check's not going to look good. The money's not going to look fair.
So how does Apple Music improve that?
Cue: We've always thought about that...People will pay for great services. They said they wouldn't pay 99 cents for a song but they did. We've always believed that. When you go to work, you don't work for free; nobody works for free. Nobody can say, "I want to work for free." Nobody says that.
Can you be more specific about the economics? Other services spell out how much they pay to rightsholders in detail.
Cue: We won't. We've always been very clear — the vast majority of the revenue we collect goes to the labels. The economics have always been the same. We have paid out many, many millions of dollars. What we've done and continued to do is hopefully get people to pay for these services that we think are great and we'll collect that money and pay the labels.
Last question. Where was Dr. Dre, Apple executive, at today's keynote?
Cue: He was sitting right there, in the center, three rows back.
Oh, I didn't see him. I was in the back.
Iovine: Dre just doesn't talk a lot.