By Steve Cook, Entrepreneur
Over the past several weeks, the entertainment and tech industry have butted heads. More specifically, star artist Taylor Swift has waged (and won) a war against tech giant Apple (AAPL).
How it unfolded
The brouhaha began last month when Apple launched a new music streaming service called Apple Music. The company planned to offer the service free of charge, at launch, for a three-month trial period. During this trial period, Apple decided not to pay writers, producers or artists the standard royalty rate of 0.2 cents per song during each user’s three-month free trial.
Swift, one of the top artists in music today, expressed her concerns in an open letter she penned to Apple and published on Tumblr. She did more than just oppose Apple’s decision. To solidify her stance, Swift stated she would not make her newest album 1989 available on Apple Music, in part, because she too wouldn’t be paid.
Beyond this payment dispute, Swift also commented on the plight of independent artists, noting their lack of bargaining power. “This is not about me,” she wrote. “These are not the complaints of a spoiled, petulant child.”
In short, these artists lacked the bargaining power Swift had, so she pointed out that she was speaking in their behalf: “This is about the new artist or band that has just released their first single and will not be paid for its success.”
The day the letter was released, Apple quickly reversed course and chose to pay a royalty rate during the free trial. The response from the tech giant was simple and to the point. A Tweet sent by Apple’s Eddy Cue said, “We hear you @taylorswift13 and indie artists. Love, Apple.”
What’s the cost to Apple?
Apple is estimated to be paying approximately $400 million in royalty rates during the free trial period, according to analysts like Neil Cybart. This may sound huge, but considering Apple’s 2014 net income of just under $40 billion, the figure suddenly becomes rather more affordable. Apple netted around 100 times that royalty cost in one year.
How Apple turned this into a positive
Some might argue that Apple’s other cost was the bad press it received. Not so fast.
In fact, Apple handled the situation well. The company turned the bad press to good, facilitating its overall goal of making the launch of Apple Music a success. The company was able to do this only because of the quick, rational and fair response it gave to the criticisms brought up by Swift and her supporting fans.
How Apple’s response became a win-win
Let’s be clear. Taylor Swift didn’t need the extra press that she received because of her open letter. She’s one of the most well-known singer/songwriters in the world.
Some publications, such as The Verge, have argued that nobody won in this situation. Apple is being forced to pay its artists and Swift is receiving the same monetary compensation as other artists.
Yet my argument is that this case turned into a win-win. Both Apple and Swift showed they are more inclined to foster relationships with their customers/listeners because of their refusal to treat them as commodities. Instead of Apple ignoring the protest of Swift and indie artist fans, it responded to them head on and changed its policy to reflect the general mode of its customers and artists.
Before the open letter, Apple was the recipient of fierce criticism from independent artists and labels. After the policy change, Apple and independent music powerhouses such as Merlin and Beggars publicly inked deals to make their artists’ catalogs of songs available on Apple Music. Now, with a larger catalog of music available on Apple Music, the customers are more likely to get what they want and eventually become paying customers.
A business lesson wrapped in a song
Businesses can take a lesson from the Apple vs. Swift kerfuffle. By treating suppliers, employees and customers fairly, companies can experience the same type of win-win even if on a much smaller, less public scale.
Too many businesses opt for short-term income by using the lowest-cost producer/provider model. But, there is a business case for being well-liked and, dare I say it, loved. When people love working with your business in any capacity, you can win a larger share of the sales or profit pie. Even though it may seem like a waste of money, at least initially, putting 1 percent of revenue toward building those important relationships is simply smart business.
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