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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