Apple in "active negotiations" for song samples with rights holders, but some music publishers want Apple to pay. How the negotiations fare could set the mood for negotiations over cloud music.
Apple's plan to extend the length of song samples doesn't appear to be dead.
"We are in active negotiations with Apple," about the length of song samples, said Hanna Pantle, a spokeswoman for Broadcast Music Inc., (BMI) one of the performing-rights organizations that collects royalties on behalf of songwriters and music publishers. She declined to provide any details.
At BMI's rival, the American Society of Composers, Authors and Publishers (ASCAP), a spokesman declined to comment. A source close to the company, however, said Apple has a license with ASCAP that doesn't appear to put any time limits on song samples. Apple also has agreements with the four major record companies to allow iTunes to boost the length of song samples from 30 seconds to 90 seconds, according to multiple sources with knowledge of the deal.
So what went wrong? Why didn't Apple CEO Steve Jobs roll out the longer samples, as expected during his company's media event last Wednesday?
Turns out that even with all the labels on board, Apple didn't have all the licenses iTunes needed. Leaders at the National Music Publishers Association, the largest trade trade group representing music publishers, informed Apple that it couldn't offer extended samples until reaching an agreement with them. But that's not the whole story. Some from the music sector say Apple simply tried to rush a deal through and misjudged its ability to get it done without agreements from all the necessary parties. Apple has made it clear that the company doesn't want to pay to license song samples, insiders say, and even they acknowledge that Apple also wants to avoid the nightmare that other music services have gone through when trying to acquire publishing rights. It typically involves tracking down untold numbers of rights holders.
Ping isn't enough
What all this means is that Apple has more work to do--possibly much more--before it can offer longer samples. Meanwhile, Google is paying close attention to Apple's efforts, according to the music industry sources. The search engine plans to launch a music service perhaps as early as this fall, the sources said. How the recording sector responds to longer song samples could give Apple and Google insight into how many hoops they may have to jump through to license cloud music services.
Both companies have talked to the major labels about storing copies of their users' music libraries on the companies' servers so that they can be accessed from any Web-enabled device, sources have told CNET. One source said because these kinds of cloud services are unprecedented for the music sector, the licensing process could prove complex.
When it comes to lengthening song samples, Apple is breaking ground. For years, the music industry has defined a sample as 30 seconds. But Apple has plenty of reasons to provide bigger samples. When it comes to helping users discover new music, the iTunes Store has not kept pace with services such as YouTube and Vevo, which offer a smorgasbord of music videos. Clicking on these, and a music buyer gets to hear free, full-length songs.
Apple's iTunes may be the No. 1 music retailer, but it is apparently not where the music-buying process begins for many iTunes users. Apple obviously recognizes the problem and tried to address it on Wednesday by adding to iTunes a music-focused social-networking service called Ping. This feature, however, has been met with a wave of criticism. Complaints range from the amount of spam found there to Ping's inability to integrate Facebook.
We don't know exactly why Apple pulled the song samples from Wednesday's presentation. But Jay Rosenthal, the NMPA's general counsel, said last week that he and David Israelite, the NMPA's chief executive, read on Monday on CNET that Apple had struck deals with the major labels to boost the length of song sales and wondered why Apple had not come to them about a deal.
On either Monday or Tuesday, Israelite sought an outside legal opinion and was told that Apple couldn't legally offer longer samples without permission from the music publishers. On the day before Apple's event, Israelite informed Apple of the NMPA's position.
"We believe that a license is necessary, and conversations must occur before song samples are extended," Rosenthal told CNET last Wednesday. NMPA representatives declined to comment for this story.
Here come publishers
It's clear that the NMPA isn't pleased about being left out of the negotiations between Apple and the major labels. There's some history here: The top four labels own the largest publishing companies and have much to say about publishing deals, as well as agreements over recording rights. But not the final say.
Here's how these things often work: Many by now have heard the version of the song "Creep" used in the trailer for the upcoming film about Facebook, "The Social Network." The song in the trailer is a cover version sung by a women's choir. To include the song, the filmmakers likely had to obtain the rights to the song's lyrics and music composition from the song's publishers.
Had the filmmakers wanted to use the version recorded by Radiohead, the band that made "Creep" famous, they would have presumably needed to acquire the recorded-music rights from EMI, Radiohead's former record label. They would still be required to pay for the publishing rights as well. When the movie appears on TV or cable, the filmmakers will need to pay a public performance feel (take a deep breath).
It's important to note that publishers get a taste in practically every situation. That's partly why some in the music business guess that Israelite, from the NMPA, jumped into the middle of Apple's song sample deal and why he's asserting himself, according to two music sector sources. For years, the publishers were treated as an afterthought, while the major labels drove most of the important deals. Israelite did not respond to interview requests for this story.
When it comes to song samples, Israelite told CNET last week that the NMPA "has not raised any substantive objection to the concept of longer song samples." That may be, but some powerful members of his organization have said publicly that they want Apple to pay for the right to offer song samples.
"In the U.S., while we do get paid a mechanical (licensing fee) from iTunes, we are not getting any performance income from Apple yet," David Renzer, chairman of Universal Music Publishing Group, said in an interview last year with entertainment industry publication Encore. "[On iTunes], you can stream radio, and you can preview [tracks], things that we should be getting paid performance income for."
So some publishers want Apple to pay for samples, and Apple has refused to make such an agreement, arguing that a 30-second sample is promotional. What Apple and the publishers have to determine is, what happens when a song sample is 60 seconds or 90 seconds long?
It's going to be interesting to see if Apple gets the longer song samples. That may tell us a lot about whether iTunes still has the weight to dictate terms to the music sector. As the executive from the music-publishing arena said, Apple is the only game in town. Unlike the film studios, which have multiple Internet outlets from which to sell, including Netflix, iTunes, and Hulu, the music industry--after all these years--really only has Apple.