October 29, 2012, 9:36 AM —
As we all know, Apple has been pretty busy in the last six weeks or so. In that time they released or announced the iPhone 5, the iPad mini, 4th generation iPad, as well as updates to the iPod, iMac and Mac Mini, among other things. One thing, however, that’s been anticipated but not yet announced is an Apple Internet radio service, a la Pandora.
However, late last week we heard that Apple’s negotiations with the major music labels to directly license their music for such a service are heating up. Based on this, it’s anticipated that Apple will release a free, ad-supported online radio service sometime early next year.
Of course, if Apple really wanted to, they could launch a Pandora-like service much sooner. They could launch a service and stream copyrighted music under a compulsory (or statutory) license, and pay the rights holders royalties set by the federal government. In short, there’s no need to negotiate licenses directly with the record labels before launching such a service.
So why is Apple trying to strike a deal with labels before launching an online radio service? Three reasons:
- Cost savings - Royalty payments to performing artists and labels for streaming under the compulsory license increase with the number of listeners (regardless of revenue) and so can be prohibitive as a service grows, so much so that some are questioning whether Pandora will ultimately survive. Apple is reportedly offering to pay the labels an upfront fee, as well as a percentage of advertising revenue instead, which should be more sustainable in the long run.
- Interactivity - In order to stream music under the compulsory license, the service must be non-interactive. This means you can’t let listeners pick particular songs, rewind or replay at will. Think Pandora (non-interactive) vs. Spotify (interactive).
- Flexibility - Choosing to stream under the compulsory license also subjects your service to the Performance Complement of the Digital Millenium Copyright Act (DMCA). This section of the DMCA places restrictions on what you can stream. Specifically, among other things, it dictates that you cannot stream the following: