Apple, Warner deal could change the music streaming business again

It hard to believe that Apple Music is already two years old. At the same time, it's also hard to imagine that it is only two years old. A lot has happened since then, in the music industry as a whole and specifically the music streaming business and it seems another phase is about to start. Apple and Warner Music Group has reportedly reached an agreement and while that in itself is hardly surprising, the details of the deal could once again shift the balance.

Apple was admittedly late to the music streaming scene and it only had its clout to lean on when inking deals with publishers and record labels. Since it was just starting up, it didn't have much negotiating power and had to concede to give content providers a higher cut than it normally would.

Fast forward two years later, the situation has significantly changed. Music streaming is credited to have revived the music industry which has been ailing for almost 20 years. Global music sales grew by 5.9% last year, a year after Apple Music launched. Now labels are more eager to be on these services, giving Apple the leverage to negotiate cuts in its favor.

When Apple Music launched, it had to concede paying labels 58% of sales from subscriptions. Now it is looking to push that down to 55%. In addition to its new found advantage, Apple's other bargaining chip is, ironically, Spotify. The music streaming giant was able to cut its 55% arrangement down to 52%, though that depends on how well Spotify performs in terms of subscriptions. Apple is expected to have a similar arrangement with record labels, starting with Warner.

Apple's deal with Warner Music would see artists like Bruno Mars, Ed Sheeran, and Red Hot Chili Peppers added to both Apple Music as well as the older iTunes Store. If confirmed, this deal would be Apple's most significant in two years, as it is the first major record label partnership since Apple Music launched. Of course, Apple won't stop there. A similar negotiation is reportedly in the works with Sony, which will eventually be followed by Universal.

SOURCE: Bloomberg