Apple’s about-face was shrewd business move

Associated Press

LOS ANGELES

Apple’s abrupt about-face on paying royalties for songs during a three-month free-trial period for its new music service was a symbolic victory for superstar Taylor Swift and other artists, and a shrewd business move by Apple, at a time when the streaming phenomenon is causing major changes in the music industry.

The olive branch extended by Apple comes as music is increasingly being consumed on streaming services such as Spotify and Deezer – to the detriment of album sales and iTunes downloads – heightening tensions between artists, labels and service providers over who gets paid and how much.

Apple already had agreed to share revenue from the new Apple Music service once users start paying a $10-a-month subscription fee for the service, which it plans to launch June 30. But the technology giant wasn’t planning to pay artists and labels directly for the use of their music during the free, 90-day trial period that it’s offering to get fans to try the service.

That changed quickly Sunday, after Swift posted an open letter to Apple opposing the lack of royalties during the free period, and declaring she’d be withholding her latest album, “1989,” from Apple Music because of it. Apple Senior Vice President Eddy Cue reversed the company’s proposed contract terms, which had gone out to thousands of independent labels, including Swift’s Big Machine Label Group, after the technology giant reached a deal with major label groups Universal, Sony and Warner in early June.

The company needed to avoid a “PR nightmare” and quickly extinguish the firestorm that Swift had created, said Daniel Ives, tech stocks analyst with FBR Capital Markets.

“They needed to handle this perfectly,” Ives said, because Apple is facing an uphill battle against competing services such as Spotify that are already well-established. “There can be no snafus or speed bumps, from the artists’ perspective, or any type of consumer backlash.”

Apple hasn’t publicly revealed how much it will pay in royalties for the free streaming period.