Apple Answers a Wake-Up Call From Taylor Swift

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There are a lot of interesting issues surrounding the kerfuffle between pop music star Taylor Swift and Apple Inc. (NASDAQ: AAPL), not the least of which is how quickly the most valuable company on earth can change its tune when confronted by an individual with real star power. As she did when she withheld her latest album, “1989,” from music streaming service Spotify because the company offers a free stream, Swift withheld the album from Apple because it is offering a free, three-month trial of its new Apple Music service.

Swift’s argument is simple: if Apple or anyone else wants to stream my music, they have to pay me for the privilege. Apple did not plan to pay artist royalties for any tune streamed during the three-month trial period.

Calling Apple’s plan “shocking, disappointing, and completely unlike this historically progressive and generous company,” Swift got the answer she wanted. Late Sunday night, Apple said it would pay artists for streaming their music, even during the free trial period. According to Re/code, Swift replied on Twitter, “I am elated and relieved. Thank you for your words of support today. They listened to us.”

In the first place, a company with $200 billion of cash in the bank could certainly have afforded to make the offer to pay artists from the beginning. Why the company chose not to do so will eventually be dug out by some (other) intrepid reporter. Whatever the reason, we expect it to be lame.

Now, though, Swift almost certainly holds the future of the streaming music business in her hands. Spotify has argued long and hard that limited free streaming ultimately leads to paying subscribers. The company has 15 million such subscribers which, to some extent, validates that argument.

Because Spotify pays a percentage of its revenue to music rights holders, there is no payment to rights holders for free streams. Apply tried the same approach, but when Taylor Swift called the company out, Apple blinked.

But Swift might have done Apple a big favor. In fact, she may have put them in position to displace Spotify and Pandora Media Inc. (NYSE: P) and all the other competitors in the streaming music business. If she now allows her music to be streamed by Apple, that could tip the balance in a sector with many competitors.

Swift’s and Apple’s main competitor stands to be not Spotify, but Google Inc. (NASDAQ: GOOG). Her audio music stream payments will be going up against the ad-supported, free video streaming payments she gets from YouTube. That sets up to be a good test of free versus paid.

Swift’s song, “Blank Space,” has had nearly 960 million YouTube views since being posted last November. How many Apple Music streams will it take to beat the revenue from that total?

If Apple is now allowed to stream Swift’s music for three months and it beats free views on YouTube, one might make the argument that Swift is more responsible for the company’s success in the streaming music business than Tim Cook, Jimmy Iovine and Dr. Dre. That, folks, is real power.

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