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Apple hopes the new service will lead to more music sales on iTunes and increased hardware sales

Apple's iTunes Radio service may be the new kid on the block, but it seems to be pleasing independent record labels with its terms -- dare I say, more so than Pandora. 

Apple sent its terms of service around to record labels last week, and it looks like Apple is willing to pay more in royalties than the 13-year-old Pandora online radio service. 

According to the terms, Apple will pay a label 0.13 cents each time a song is played along with 15 percent of net advertising revenue for the first year. In the second year, that 0.13 will bump up to 0.14 cents per song played and 19 percent of ad revenue.

In addition, Apple will provide music publishers more than twice as much in royalties than Pandora. Pandora currently pays labels 0.12 cents per song played. 

Apple will also receive some perks, such as not having to pay royalties in instances where a listener skips a song within the first 20 seconds of it playing; performances of songs are already in the listener's iTunes library; songs on an album that the listener owns part of, and "Heat Seeker" tracks that are special promotions for iTunes. 

While Apple's iTunes Radio service will act as a platform for its iAd mobile advertising system, Apple is likely hoping that using the radio service will push listeners to buy the tracks they like from iTunes. It could also encourage sales of its devices like the iPhone and iPad. 

Apple isn't Pandora's only issue right now. The online radio company has been battling with concerns over what it pays in royalties, and whether it's being fair to artists. Pandora founder Tim Westergren recently addressed some Pandora-related concerns on the company blog

"The first falsehood being disseminated is that Pandora is seeking to reduce artist royalties by 85%," wrote Westergren. "That is a lie manufactured by the RIAA and promoted by their hired guns to mislead and agitate the artist community. We have never, nor would we ever advocate such a thing. I challenge the RIAA to identify a statement from Pandora that says we seek to reduce royalties by 85%. On the contrary, all of the key principals including Cary Sherman (the head of the RIAA) and Mike Huppe (the head of SoundExchange) know that we have been advocating for solutions that would grow total payments to artists. The 85% sound bite preys upon the natural suspicions of the artist community, but it is simply untrue. And although we compete directly with AM/FM radio, which pays zero performance royalties, we have always supported fair compensation to artists."

Westergren said that artists have different opinions from the RIAA about Pandora's music service, and that most of what the RIAA has said about Pandora is untrue. 

Source: The Wall Street Journal

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By Motoman on 6/27/2013 12:26:33 PM , Rating: 2
The traditional complaint against Pandora as compared to, say, satellite radio, is that they pay a tiny fraction of the royalty fee.

Don't remember off the top of my head what it is, but let's say for the sake of argument that Sirius pays 50 cents per play of a song, whereas Pandora pays a penny.

So that gets people up in arms pretty fast. But here's the problem...when Pandora plays a song, it's going to one individual user. One play - one user. When Sirius plays a song, there might be a million people listening to it.

Using my made-up numbers there, which are pretty close in scale if not in absolute value, it's clear that if 51 or more people are listening to a Sirius-played song, then Pandora is actually providing a higher per-user revenue stream at a penny per play. And even if I wind up being off by a level of magnitude, what are the chances that there's not 500 Sirius listeners for a given song, vs. one listener for a Pandora song? Or even 5,000?

RE: bah
By Concillian on 6/27/2013 3:01:37 PM , Rating: 2
Well the Cracker dude published what he got from Pandora and Sirius, so we have what the actual numbers are. Pandora was $0.000015 per play to him and Sirius was around $1.

So it's a few more than than 50 people per Sirius play to break even, more like >50,000 people hearing each Sirius play. Your point is the same, but I think the magnitude difference is pretty significant.

RE: bah
By Motoman on 6/27/2013 3:55:52 PM , Rating: 2
Well, there may be some further inequity between the way the music producer sends the Pandora vs. Sirius revenue on to him too.

But realistically, I don't have a problem believing that on average there's at least 50,000 people listening to a given song on Sirius. It's a nationwide (worldwide?) service...not like a terrestrial radio station.

It would be highly interesting to see if there's any kind of stats that can be given for the average listener rate on Sirius. Not sure it's possible...but I don't know for sure.

RE: bah
By Motoman on 6/27/2013 3:57:07 PM , Rating: 2
Oh, also I think Sirius radio stations are also available via Dish and/or DirecTV too, aren't they? So there's more listeners there too.

"It's okay. The scenarios aren't that clear. But it's good looking. [Steve Jobs] does good design, and [the iPad] is absolutely a good example of that." -- Bill Gates on the Apple iPad
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