Apple Inc has secured a deal for songs from Warner Music Group Corp, the technology giant’s first agreement with a major label since introducing its on-demand music service two years ago, according to people familiar with the matter.
Warner is to provide Apple a catalog spanning Ed Sheeran, the Red Hot Chili Peppers and Bruno Mars for online store iTunes and streaming service Apple Music.
Apple plans to pay record labels a smaller percentage of sales from Apple Music subscribers than it did under its first deal for the streaming service, the people said, asking not to be identified discussing private information.
Large technology companies and music rights holders are establishing a framework this year for how to share proceeds from on-demand streaming, now the dominant source of sales for the record business in the US.
Music rights holders have been willing to accept a slightly smaller share of the sales from on-demand services, provided those services continue to sign up paying subscribers at a high rate.
Paid streaming was still a fledgling business when the company signed its initial deal and it was willing to lose a little extra money because the service was intended to boost sales of the iPhone.
Once the dominant player in online music, Apple was also eager to get a service on the market that could compete with growing rivals Spotify Ltd and Google’s YouTube.
Music has now taken on larger importance at Apple. The concept of paying for access to a trove of songs and curated lists on demand has since revived a music industry that was in decline for nearly two decades.
Global music sales last year grew 5.9 percent to US$15.7 billion, according to the International Federation of the Phonographic Industry.
That number is to climb to US$41 billion by 2030, Goldman Sachs Group Inc projected in a recent report.
The streaming service contributes to Apple’s services revenue, which the company aims to double to about US$50 billion by 2020.
Additionally, as users add more songs to their library, it serves to dissuade them from trading in their iPhone or iPad for a competing Android-based device.
The company is also reportedly planning to spend about US$1 billion in the next year on original video programming for Apple Music and other future video streaming products.
Apple pushed for a rate cut in this new round of talks after Spotify, the world’s largest paid music service, secured a rate reduction earlier this year.
Apple has been paying labels 58 percent of sales, a higher rate than Spotify pays. Apple also traditionally granted publishers a higher rate than its Swedish rival.
Apple is now considering giving labels a cut of 55 percent, which would decrease if subscriber numbers meet targets.
Spotify had been paying labels about 55 percent of sales from paid subscribers, and paid publishers as well. That rate fell to about 52 percent, although the rate cut is contingent upon Spotify reaching certain performance metrics.
Sony Music Entertainment, owner of the second-largest record label, is also on the verge of a deal with Apple, one of the people said.
A deal between Apple and Universal Music Group, owner of the top label, is further off.
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