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The music giant's terms for its new Apple Music offering put too much pressure on smaller labels to subsidize the launch, a UK industry group says

By Mathew Ingram
June 17, 2015

When it comes to music, Apple isn’t just the 800-pound gorilla, it’s like a whole gang of 800-pound gorillas, armed with sub-machine guns. Not only does it control iTunes, which many record labels and independent artists have come to rely on as a key source of income, but the power of the Apple device ecosystem means its new Apple Music offering will instantly become a huge competitor—and one that music-industry players will probably want to be on board with.

Independent record labels in Britain say Apple is using this market dominance to enforce unreasonable terms on them when it comes to the company’s new music service, which was announced at the recent Apple developer conference. The head of Britain’s music lobby group told The Telegraph his members are outraged that the company wants labels to help subsidize a three-month trial of Apple Music, in which they will see zero music royalties for their content.

“If you are running a small label on tight margins you literally can’t afford to do this free trial business. Their plan is clearly to move people over from downloads, which is fine, but it will mean us losing those revenues for three months,” said Andy Heath, the chairman of lobby group UK Music. That kind of deal would “literally put people out of business,” he said.

The UK Music spokesman said that to his knowledge, no independent labels have signed on with Apple Music yet, which means that the service could launch without some significant artists on board. Independent labels like Xl Recordings and Domino represent a number of popular acts such as Adele, The Arctic Monkeys and Alabama Shakes. Some industry sources estimate that as many as 50% of the independent labels could decide to keep their content out of Apple’s new service because of its terms.

According to a number of recent reports, Apple is planning to offer publishers and labels that partner with it higher royalty rates than they would get otherwise — a total of 73% of revenue for non-U.S. music, instead of the usual 70%. But even that sweetener might not be enough to get some labels to jump on the bandwagon if they have to forego any cash for three months. “Apple can’t spring a contract like this on us three weeks from release,” said Heath. “They are basically putting all the risk on the labels.”

It’s hard not to agree with UK Music and its member labels on this point. Apple is a massive company with a $740-billion market cap, and more than $175 billion in cash on hand, enough to buy every record label in the world outright. If it wants to offer a three-month trial period for Apple Music, then why not do so out of its own large pockets, instead of asking small labels to subsidize it?

Apple may be used to getting is way because of its market size, but that size can also be a disadvantage. The company’s tactics in trying to get Apple Music off the ground have already attracted the notice of the attorneys-general in two U.S. states, who are investigating claims that the giant corporation tried to strong-arm labels and publishers into not playing nice with its competitor Spotify.

There may be no truth to those allegations, but the company already has a reputation for similar tactics, after the recent high-profile antitrust case involving e-books, in which Apple was convicted of colluding with the major book publishers to keep prices high. And regardless of what it has or hasn’t done, trying to bully independent record labels into subsidizing its new service certainly doesn’t look good.

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