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To pay or not to pay? Opinions on Apple Music's growing pains

Apple's senior vice president of Internet Software and Services, Eddy Cue (left), high fives with recording artist Drake during the Apple Music introduction earlier this month in San Francisco.
Apple's senior vice president of Internet Software and Services, Eddy Cue (left), high fives with recording artist Drake during the Apple Music introduction earlier this month in San Francisco.
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At this year's Worldwide Developers Conference, Apple announced that all iTunes customers would be eligible for a three-month free trial of the company's new streaming service. Although it seemed like a great idea for curious consumers, it was soon revealed that it might not be the best idea for artists: the company wasn't planning on paying record labels and artists during the free trial.

Yesterday, Taylor Swift posted an open letter on her Tumblr page about Apple's policy, and by the end of the day, Apple had reversed course. To better understand the shifting position of Apple Music, we first talked to Shirley Halperin, news director at Billboard.

Interview Highlights:

Taylor Swift had already taken on Spotify and now she's forced Apple to change its policy. Is she now the most powerful person in the music industry?

The thing about Taylor Swift is that she has a very loud megaphone — she has tens of millions of followers — 60 million on Twitter alone — so when she says something, people listen. She can energize her fan base very quickly.

In her letter, Swift said she was looking out for newer artists, songwriters and producers who aren't as financially successful. There are, however, plenty of very successful musicians who didn't speak out about Apple. Why is that the case?

I think most musicians, when they sign a recording contract, are a part of the record company machinery and they don't always understand the ins-and-outs of the contracts.

Taylor Swift is in a different position because she actually has an equity stake in her own label, so I think she sees both sides of the business — she's a performing artist and a businesswoman. Because she started as an independent artist and worked her way up, she's really had a full range of experience.

You spoke last night with Apple's Senior VP of Internet Services and Software, Eddie Cue. What did he have to say about their decision to change course?

It's really interesting. Eddie Cue woke up in the morning, saw Taylor Swift's letter, and it caused him to take decisive action. The really amazing thing about this, I think, is how nimble Apple is that they could just make a decision like that on the fly, and also that an artist influenced a giant, $700 billion corporation to eat the costs of those 90 days to get people in the door.

Have you spoken with anyone at Spotify in the last couple of weeks? What's the mood over there?

I think, in general, Spotify has a very large head-start here. They've locked in many territories, it's become synonymous with streaming — they have a good run right now. It's unusual to see Apple in the position of having to catch up, but they do have to.

Now, Apple is saying that they have 800 million credit cards on file, and if five percent of those people sign up for the streaming service, that's 40 million subscribers. Spotify only has 15 million. Apple will beat Spotify, but it's going to take like five years, so I think the industry is in a little bit of a wait-and-see period right now.

To gain more perspective from within the music industry itself, we also spoke with Paul Tao, co-owner of the L.A.-based indie label IAMSOUND. Tao talked about the precarious position of indie labels in regards to Apple, as well as the jolt of energy provided by Taylor Swift.

Interview Highlights:

When did you learn that Apple would not be paying artists for its three-month streaming trial? Was it a condition of being part of Apple's permanent service?

We were informed about it by our distributor. We're distributed by RED, which is the independent distributing arm of Sony, and they explained everything to us about the three-month trial without getting paid and asked if we were okay with it. Technically, we were allowed to opt out of it if we really wanted to.

What was the debate at your label about opting out?

In the end, we decided to stay with it because, as an independent label, digital sales is a very large portion of any money that we make, and out of all that, iTunes is definitely the biggest seller. Spotify gives us decent revenue and some of the smaller [streaming services] as well, but iTunes is without a doubt the biggest player, and we didn't feel like we were in a place to rock the boat too much at this point.

We're glad that other, larger figures like Taylor Swift have made a statement, but for us we figured that it was better to stay on their side, considering they probably give us the biggest amount of income.

What percentage of your label's revenues are coming from streaming as opposed to downloads?

Our digital sales are about 60% of our profits and, out of that, downloads take up more than 75% of it.

Were you surprised that Apple switched courses so quickly on its policy?

Absolutely. Apple's a giant corporation and structuring deals with the entire music industry is almost infamous among these digital service providers. It takes a long, long time to deal with everything, but I suppose they figured that no one was going to say no to getting paid, so it was probably an easy decision for them to make. I thought perhaps they would eventually change it, but I had no idea it would happen in less than 24 hours.

Taylor Swift's getting a lot of credit, but do you think indie labels also had a role here in Apple's decision?

I would like to think that Apple heard the concerns of the indie world. I know that quite a lot of indies, led by Beggars Group, had been complaining as well. But I think the indie labels are a smaller piece of the pie and I think Taylor motivated everyone to be like, Hey, it's not just the indie labels, it's not just the small guys that are listening. It changed the complete conversation, which is fantastic.

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