Apple Is Said to Reach Music Deal With Warner; Sony Pact Next

Apple has secured a deal for songs from Warner Music Group, their first agreement with a major label since introducing its on-demand music service two years ago, according to Bloomberg, citing people familiar with the matter.

Warner will provide Apple a catalog spanning Ed Sheeran, the Red Hot Chili Peppers and Bruno Mars for both iTunes, the online store, and Apple Music, the streaming service. Apple plans to pay record labels a smaller percentage of sales from subscribers than it did under its first deal for the streaming service, the people said.

Large technology companies and music rights holders are establishing a framework this year for how to share proceeds from on-demand streaming, now the dominant source of sales for the record business in the U.S. Music rights holders are willing to accept a slightly smaller share of the sales from on-demand services, provided those services continue to sign up paying subscribers at a high rate.

Paid streaming was still a fledgling business when the company signed its initial deal, and it was willing to lose a little extra money because the service was intended to boost sales of the iPhone. Once the dominant player in online music, Apple was also eager to get a service on the market that could compete with rivals Spotify and YouTube.

Music has now taken on larger importance at Apple. The concept of paying for access to a trove of songs and curated lists on demand has since revived a music industry that was in decline for nearly two decades. Global music sales grew 5.9 percent to $15.7 billion in 2016, according to The International Federation of the Phonographic Industry. That number will climb to $41 billion by 2030, Goldman Sachs projected.

The streaming service contributes to Apple’s services revenue, which the company aims to double to about $50 billion by 2020. They pushed for a rate cut in this new round of talks after Spotify, the world’s largest paid music service, secured a rate reduction earlier this year. Apple has been paying labels 58 percent of sales, a higher rate than Spotify, and is now considering giving labels a cut of 55 percent, which would decrease if subscriber numbers met targets.

Sony Music Entertainment, owner of the second-largest record label, is also on the verge of a deal with Apple, one of the people said. A deal between Apple and Universal Music Group, owner of the top label, is further off. Warner is the first major music company to reach new, long-term deals with all three of the biggest players, Apple, YouTube and Spotify. Universal and Sony have agreements with Spotify, but have yet to sign new deals with YouTube and Apple.