Apple secures licensing deals ahead of iCloud unveiling

Fri Jun 3, 2011 8:39pm EDT

The Apple Inc. logo is seen in the lobby of New York City's flagship Apple store January 18, 2011. REUTERS/Mike Segar

The Apple Inc. logo is seen in the lobby of New York City's flagship Apple store January 18, 2011.

Credit: Reuters/Mike Segar

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NEW YORK (Billboard) - Just days ahead of its planned unveiling of its iCloud service, Apple has succeeded in securing licensing deals from all four major labels and music publishers.

In fact, it's probably done more: By agreeing to pay major publishers a 12 percent cut of iCloud revenue, it may have set a new, higher digital payment standard for publishers, whose share of revenue from a digital service is typically about 10 percent or less.

Apple CEO Steve Jobs and other senior executives will provide details about the iCloud service during a June 6 keynote presentation at the company's annual Worldwide Developers Conference in San Francisco.

Universal Music Group was the final major label to come to terms for the iCloud service, according to sources familiar with the situation. Apple has agreed to pay major labels approximately 58 percent of revenue, leaving Apple with about 30 percent.

While sources say Universal and Sony Music Entertainment were asking for 60 percent of revenue, they now suggest that a last-minute compromise was reached to accommodate the 12 percent royalty rate being paid to publishers.

Apple has yet to reach deals with independent publishers and labels. Sources say that it will offer indie publishers the same 12 percent rate it is paying major publishers. However, Apple began negotiations with independent labels by offering them only a 53 percent revenue cut. Some indie-label executives say they're pushing back on Apple to get a higher cut.

Meanwhile, Google is still negotiating with the major labels and publishers for its Music Beta cloud service, which it unveiled May 11 at the Google I/O conference in San Francisco. One of the obstacles to those talks was the fact that Universal and Sony Music Entertainment were seeking a 60 percent revenue cut, while Google agreed to pay major publishers a 12 percent revenue share and retain 30 percent for itself, according to sources. Universal and Sony, those sources say, wanted publishers to receive a smaller share.

Not all industry observers agree that the majors are making a play to cut the publishers' share. "Nowadays, the majors are trying to get 80 percent of the revenue in the new digital deals coming their way, so I am guessing that the majors are trying to cut Google's and Apple's share," a source familiar with the situation says.

Although Google has offered major labels and publishers similar revenue cuts as Apple, it doesn't wield nearly the same leverage with them. Apple's iTunes store accounted for about 33 percent of U.S. recorded-music revenue in 2010 (Billboard, May 14).

Disagreement over revenue splits hasn't been the only hurdle in the Google talks, with some sources noting that differences also remain over advances and demands that the search giant be more active in fighting music piracy.

Apple, Google and Amazon, which like Google has launched a basic cloud music service without label and publisher deals, want to offer scan-and-match-style locker services, under which they would scan users' digital music libraries and match the songs the services have licenses for in a centralized server, rather than require every user to upload their music to a cloud-based storage locker. The amount each service pays music rights-holders for individual tracks would depend on usage, with payment splits pro-rated by actual plays.

(Editing by Chris Michaud)

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