The High Cost of 'Free $.99'

(Hypebot) – The first indication of a problem was the utter silence that greeted my inquiries after the customary pleasantries we share when we first get on a call. More silence greeted most of my emails as they went either unanswered or were responded to with the classic two words, “call me.” When I was able to squeeze out some insight, I was told something to the effect of, “the deal is what it is. It’s Apple. It will pay off in the long-run.”


I was (and still am) dumbfounded.


Guest Post by Julian Petty, Entertainment Attorney at Nixon Peabody LLP.


This past weekend, I got a somewhat frantic call from a colleague of mine, Corey Smyth. Corey is a long-time manager in the music business, a veteran in the game who has helped guide the careers of several notable artists including Talib Kweli, Mos Def and De La Soul. He was calling about our shared client, Long Beach hip-hop phenom, Vince Staples, who’s dropping his debut album, “Summertime 06” later this month.


The purpose of Corey’s call was simple – he wanted to know how the new Apple streaming service was going to ultimately impact the launch of Vince’s debut album which is dropping on June 30, the same day as Apple Music’s hotly anticipated launch. Based on what he had heard, there will be no royalties paid during the initial 3-month trial period. In today’s digital era, pay structures have changed, and while you may need to be a computer genius to figure out these new algorithms, artists still get paid for their work! No royalties at all seemed ridiculous but I assured him that I would investigate the issue and get back to him with some facts.


I spent the next few hours reading about Apple Music’s launch and calling and emailing various business affairs executives at major labels. The first indication of a problem was the utter silence that greeted my inquiries after the customary pleasantries we share when we first get on a call. More silence greeted most of my emails as they went either unanswered or were responded to with the classic two words, “call me.” When I was able to squeeze out some insight, I was told something to the effect of, “the deal is what it is. It’s Apple. It will pay off in the long-run.”


I was (and still am) dumbfounded.


In the midst of seeking out answers, I found out what I didn’t want to hear: Apple Music will have 3-months to exploit the music created by the blood, sweat and tears of artists, songwriters and producers and not have to pay one red cent. And to be clear, this is 3-months for every new subscriber.


The arguments for this extended trial period are pretty simple: 1) the freemium model works – look what it has done for Pandora and Spotify (currently, Spotify has a 26.7% conversion rate from “free” to “subscribe”) and 2) downloading music is here to stay as part of the music consumption ecosystem – so while this may slightly impact downloads – the ultimate affect will be nominal and people will still buy. Will they? There is some truth to these arguments but because Pandora and Spotify both have an ad-supported model (within their “free tier”), the artists still end up with something and whether downloads are actually here to stay, remains to be seen since currently, the numbers are down. Nonetheless, neither rationale addresses what I see at the most pressing issue – how this will impact new artists, especially those releasing music during the early days of Apple Music.


So let’s get back to Vince Staples. Vince’s debut album, “Summertime ’06”, is scheduled to be released on the legendary Def Jam Records on June 30, 2015 – unfortunately, the same day that Apple Music will launch. Consider the impact. On Tuesday, June 30, Vince’s fans, young consumers of hip hop music, are going to see on their social media feeds that Apple Music’s free trial period has launched. They won’t even brush their teeth before signing up for Apple’s newest offering on their iPhones and other devices. And if they were excited to listen to “Summertime ’06” on its release day, that’s what they’ll do – except instead of downloading it on iTunes, or streaming it on Spotify, they’ll get it for “free $.99” on Apple Music.


Other music fans, unfamiliar with Vince Staples and first exploring the service are going look for new music to listen to, many will look in the new releases section and voila – there’s the brand new Vince Staples album! They’ll add it to their Apple Music library and over the next weeks and months, they’ll enjoy the lyrical cadence of Mr. Staples whenever they select it on Apple Music. For all those streams, Vince won’t make a dime. For his months of work, dedication to his craft and undeniable talent, he will literally make nothing. And it’s not just Vince who won’t get paid – the producers, writers, side artists and every other contributor to the album will not get paid when people are streaming, bumping, driving and vibing off of “Summertime ‘06”. These listeners very likely will not buy “Summertime ’06” because why buy cows when Apple’s offering free milk… for 3 months! They likely won’t listen on a paid streaming service, like Spotify, because at the time of release everyone will be excited to kick the tires on Apple Music.


Like with any new release, presumably, the vast majority of the streams of “Summertime ’06” are going to take place during the initial weeks and months following. And if those streams are on Apple Music – which we have every reason to think they will, Vince and his album will have gotten hammered.


And it’s not only Vince’s album that will suffer, other prominent artists are also coming out the same day and in the weeks following the Apple Music launch – Miguel, The Game, Ghostface Killah, Little Boots, The-Dream, Veruca Salt, Iron & Wine, The Chemical Brothers and many more. So this free trial launch will have a resounding impact amongst several artists, musicians, labels, publishers, writers, etc.


I’m still trying to get an answer as to why the majors would have signed on to this. Perhaps it was the quid pro quo for what Apple claims will be a slightly higher royalty than what’s paid on other services. Perhaps no one ever wants to be on Apple’s bad side (they do control over 50% of digital retail music sales). Or maybe in the long run it’s not that big of a deal for labels. But while major labels and major publishers will be able to withstand the hit that they take, artists who come out when the service launches are going to have the projects they worked so hard on immediately devalued by Apple Music’s overly aggressive attempt to gain market share from entrenched competition.


So my take on Apple Music is: Good for Apple? Definitely. Good for the majors? Probably. Good for new artists? Absolutely not.


So now I get to call Corey back and tell him the bad news: he was right.


Julian Petty is an entertainment attorney at Nixon Peabody LLP. In addition to Vince Staples, he also reps Earl Sweatshirt, Estelle and the Estate of Notorious B.I.G. among others.

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