Digital Audio Insider -- the economics of music and other digital content

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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

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June 21, 2011

Some Details (and Questions) About Apple's iTunes Match Service
by David Harrell
iTunes Match image
A Chicago label is getting some attention for opting out of Apple's iTunes Match service. Numero's Ken Shipley also shared some financial details about iTunes Match in a comment to a recent Hypebot post on Numero's decision. Based on that information, we can make some assumptions about how the service will work:

1. Apple Is Reaching Out to Indie Labels
We know that all four major label groups are on board with iTunes Match, but it appears that Apple is contacting at least some indie labels directly to convince them to include their catalogs in the matching service.

2. A Match Is Enough
I had wondered if payments to labels might be based on the number of times a track was played. But the way Shipley describes it, if a track is contained in an iTunes library, that constitutes a "match," and a payment to the label.

3. The Per-Track Payouts Are Small (and Variable)
This was a given, of course. At $24.99 a year, there's simply not a lot of cash to share with labels. Shipley gives a figure of .0035 cents per match for a 5,000 track library, of which .0006 cents would be shared with the publisher of the song. However, I'm wondering if he meant .35 cents instead of .0035. Apple will share 70% of the $24.99 annual subscription fee, or $17.50 with labels. If you multiply 5,000 by .35 cents, it equals $17.50. Assuming that the payout is the larger figure, it'd still require 200 matches to equal the 70 cents that Apple pays for a 99-cent iTunes download. Though if the payout is based on the size of an individual user's iTunes library, the per-track amount will vary. Apple says it will support libraries of up to 25,000 tracks. If you divide $17.50 by that number, the per-match rate would be .07 cents.

4. Avoiding the "S" and "D" Words
At this point, no one seems to know for certain if matched tracks will be streamed by Apple to a device or if a match simply allows a subscriber to download the track. I thought the language on Apple's site suggested streaming, though I've read that it's a download, as Apple is worried that streaming would result in a huge bandwidth/data problem if iPhone users streamed their music collections all day.

According to Shipley's comments, Apple is avoiding both the "streaming" and "downloading" words because they don't want to be liable for current streaming rates or mechanical royalties.

We'll learn more details over the summer, but for now, here are a couple of unanswered questions:

1. A One-Time or Annual Payment?
Will a label receive a payment every year, as long as the track remains in a user's iTunes library? Given that subscribers pay the $24.99 maintenance fee each year, it seems more likely that it's an ongoing payment.

2. Is a Match Based Solely on Metadata?
While Apple has been lauded for coming up with a model that results in a revenue stream for music that might have been obtained illegally, that's a negative in Shipley's view. Whatever the quality/bit rate of the file on your hard drive, iTunes Match will upgrade it to 256k AAC file. Yet if the match is based solely on a music file's metadata, you don't even have to obtain the actual track -- you could simply change a file's metadata in iTunes or another program. It'd be a pain, but that with a few clicks and a bit of typing you could match any track in the iTunes catalog.

If you work for a label and can confirm any of the above, or have other details you're willing to share, please leave a comment or shoot me an e-mail. Thanks!

related: Some Quick Thoughts On iTunes Match


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