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Apple Might Have Signed a Cheaper Music Deal With Warner

Sep 07, 2017

Apple has reportedly signed a deal with a major record label that could ultimately save the company some cash.

Apple and Warner Music Group have signed a new deal that will allow the technology giant to continue streaming and selling the label's catalog through its Apple Music service, Bloomberg is reporting, citing people who claim to have knowledge of the accord. Apple will pay Warner a percentage of Apple Music sales, but that revenue share is actually lower than it was in a previous contract the companies had signed years ago, according to Bloomberg's sources.

Music labels have long had a contentious relationship with digital marketplace owners that offer streaming and download purchases to customers. Physical media, like CDs, generated far more in revenue for the labels, and the turn to digital squeezed revenue and their bottom line.

Apple (aapl) has been among the most preferred digital marketplace partners because the company doesn't offer free streaming services and requires customers to either purchase songs or sign up for its $9.99-a-month Apple Music streaming service to access content. A portion of the revenue Apple generates through those services then goes to labels. Neither Apple nor the labels has ever divulged how much revenue is shared.

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Now, though, streaming has becoming the de facto method for accessing and consuming music. And through services like Apple Music and Spotify, millions of people around the globe are opting to stream content to their smartphones or computers rather than purchase individual tracks and download them to their devices.

According to Bloomberg's sources, Apple had been paying record labels 58% on all sales through its Apple Music service. However, the company's chief competitor Spotify, which also offers a $9.99-a-month streaming service, had been paying 55% on its revenue, and negotiated the fee down to 52% earlier this year. Apple ostensibly wanted its own reduction and is willing to pay 55%, according to the report.

But Warner Music might just be one step in Apple's effort to reduce its cash outlay. According to Bloomberg's sources, Apple is also holding discussions with Sony Music Entertainment on royalty rates and could have a deal in place soon. The company is also holding discussions with Universal Music Group, but likely won't strike a deal in the near term, according to the report.

Until then, however, Apple is expected to continue streaming content from those labels under its existing contract.

Apple declined Fortune's request for comment on the Bloomberg report. Warner Music did not respond to a Fortune request for comment.

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