The Apple Music dilemma: Who pays for a free trial?

Update: Apple's Eddy Cue has announced Apple Music will pay artists during free trial period. So they went for option 2, below.

For the first ninety days of Apple Music, customers won't be asked to pay anything, and neither Apple nor the music industry — including artists — will be getting paid. Customers will get all of Apple Music for free, while iTunes supplies the service and the industry — including artists — supplies the content with no up-front remunerations. That's led to some artists declining to participate and voicing their concerns through the media, traditional and social.

Andy Heath, the chairman of UK Music, spoke with The Telegraph:

Mr Heath told The Telegraph that to his knowledge no British independent labels have agreed to Apple's terms or intend to on grounds they will "literally put people out of business"."If you are running a small label on tight margins you literally can't afford to do this free trial business. Their plan is clearly to move people over from downloads, which is fine, but it will mean us losing those revenues for three months.""Apple hasn't thought this through at all and it's not like them. They can't spring a contract like this on us three weeks from release. "They are basically putting all the risk on the labels. People will say 'oh but you're on Spotify'. Well yes, but we get paid for that.""Of course my members want another player in the market but not at the risk of their survival. Apple is sitting there with this massive pile of cash and saying to us, 'you help us start a new business'. Well I just don't think it is going to happen on these terms.""I think the dynamic here is nothing to do with the royalty rates but there are elements of these deals that are just too difficult for smaller labels to do. It will literally put people out of business. Smaller labels would be completely screwed. Apple just has to move on this."

Hit recording artist Taylor Swift expressed her concerns on Tumblr:

I'm sure you are aware that Apple Music will be offering a free 3 month trial to anyone who signs up for the service. I'm not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company.I realize that Apple is working towards a goal of paid streaming. I think that is beautiful progress. We know how astronomically successful Apple has been and we know that this incredible company has the money to pay artists, writers and producers for the 3 month trial period… even if it is free for the fans trying it out.Three months is a long time to go unpaid, and it is unfair to ask anyone to work for nothing. I say this with love, reverence, and admiration for everything else Apple has done. I hope that soon I can join them in the progression towards a streaming model that seems fair to those who create this music. I think this could be the platform that gets it right.

For the company's part, Apple's vice-president of iTunes Content, Robert Kondrk, told re/code:

Apple's payouts are a few percentage points higher than the industry standard, in part to account for the lengthy trial period; most paid subscription services offer a free one-month trial.

I certainly don't know enough about the industry and its dynamics to speak with any authority on what should or shouldn't be happening. There don't seem to be many options, however, for how to do it differently:

  1. Change the trial period from ninety days to somewhere between zero and thirty days. At zero days, the recording industry would start getting paid immediately, though it might hurt adoption of the new service since there's no free tier. (Competing services seem to offer free trials and tiers.) At seven, fourteen, or thirty-days, the recording industry would get paid sooner, but would it risk some customers not getting as invested in the service as they might with a longer trial?
  2. Have Apple subsidize all or part of the ninety-day trial. Since Apple has over a hundred billion in the bank — some of that domestic, most of it international — they could afford to pay artists out of the company's own coffers during the trial period. That would certainly make the music industry — especially artists — happy. Apple is a for-profit company, however, already donating the services side of the business for free for those ninety days. Apple is also a frequent target for anti-trust litigation, already having been sued over eBooks and already being investigate for music. Could subsidizing longer than industry standard Apple Music trials be seen as unfair competition?
  3. Create a conversion bonus when customers start paying. Although Apple says the company will be paying higher rates to compensate for the longer trial, perhaps the music that customers listened to during the free trial could receive additional compensation once the customer converts to paying. It would still mean a period of non-compensated content, and a higher cost to Apple who's already providing the service at no-cost, but could it better reward the content that is participating in the trial?
  4. Let artists opt-out of the free trial. That way, anyone who feels like they can't afford to contribute their music as a way to secure subscription revenue sharing going forward can withhold it at first. (It seems like Taylor Swift and others are doing this already by excluding, for example, recent albums.) If all the desirable music is absent from the free trial, however, could it also risk significantly hurting conversions to the paid version?
  5. Show ads during the free trial. Ad-supported free trials and tiers aren't uncommon in streaming music services. They also haven't proven to be successful revenue generators, or great experiences for anyone. Apple will be using ads in News, though, so could the company and the industry figure out a way to use them in Music?
  6. Let customers who choose to start paying at any time. It may or may not be planned like this already — I don't know — but Apple could let any customer who chooses to skip any part of the free ninety-day trial and start paying immediately. That way, if anyone wanted to make sure the music industry received more compensation, they could do so. How many people, however, would choose to pay before they absolutely had to?

Regardless of what happens, all of this highlights just how tough a problem streaming music really is to solve. That it hasn't been solved to many people's satisfaction yet is an even bigger indicator.

One additional note — I've been using the term "music industry" here because "artists" isn't really accurate. It's not "artists" that aren't getting paid, it's the entire industry, including labels and other middle-people and brokers. And those middle-people and brokers are never thrown under the bus anywhere nearly as hard and repeatedly as they should be.

Traditionally artists have been screwed by labels, and it's so bad they'll try to get the compensation they truly deserve from anyone and everyone else. Even if Apple did choose to subsidize the ninety trial completely, how much of that money would really end up in the hands of the artists?

The system, in general, is archaic and broken, and until it's fixed, it's hard to see anything helping artists directly outside the traditional revenue generators of live performances and ancillary merchandizing.

In an ideal world, the Taylor Swifts, Trent Reznors, and indie artists would be working with Apple to create a way for them to make sure artists get paid better and more significantly, in general, even without labels.

A streaming service that pays better, and more directly to the writers, producers, singers, and musicians, sounds like the solution almost everyone wants.

Unless and until that happens, this question is going to be hard to solve: Who pays for free trials?

Rene Ritchie

Rene Ritchie is one of the most respected Apple analysts in the business, reaching a combined audience of over 40 million readers a month. His YouTube channel, Vector, has over 90 thousand subscribers and 14 million views and his podcasts, including Debug, have been downloaded over 20 million times. He also regularly co-hosts MacBreak Weekly for the TWiT network and co-hosted CES Live! and Talk Mobile. Based in Montreal, Rene is a former director of product marketing, web developer, and graphic designer. He's authored several books and appeared on numerous television and radio segments to discuss Apple and the technology industry. When not working, he likes to cook, grapple, and spend time with his friends and family.