Is Apple Screwing the Music Industry?

NEW YORK (TheStreet) -- It seems "everybody" wants to call Google's (GOOG) new music platform and Apple's (AAPL) forthcoming iRadio respective Spotify and Pandora (P) killers.

Point missed. Again.

This has become common in media coverage of Internet radio. As much as I love LinkedIn, they're a guilty party. Out of the universe of Apple iRadio stories the professional social network could choose from, it decided to feature this tripe on Tuesday ...

Nice headline. Slips easily off of the tongue, but fails to dig deep into the actual meaning of why companies such as Google and Apple enter a space that will produce rounding-error type revenues for their multi-mega billion dollar businesses.

LinkedIn could have disseminated a much more thoughtful piece from Timothy Stenovec over at Huffington Post where he astutely muses:
But unlike any of those other companies, Google's music service could fail to capture market share from the big players and still be a success. That's because delivering music and new accounts is yet another way for Google to amass personal, intimate details about its hundreds of millions of users -- information that enables it to better target ads.

Another smart guy I have sparred with on CNBC, Drew Olanoff of TechCrunch, covered similar ground with respect to Twitter's new music service. The data Twitter collects on music listening habits can help the music industrial complex do a better job at promotion (not to mention generating new, more sustainable revenue streams) in the digital age.

But there's a question Stenovec and Olanoff did not ask. I wish I could take credit for it. But it must go where it's due. To a Nashville-based Twitter follower, Danny Murphy, who has misplaced more knowledge about the music industry than I'll ever possess:

If the music industry only receives a cut of iRadio revenue (and Google All Access-related revenue), but not a portion of the overall iAd business at Apple, for example, it's selling itself short. Getting screwed. Again.

Because I would be flat stunned if Apple or Google agreed to share ad revenue outside of what is directly generated by their music platforms with the music industry. Let's operate from that relatively safe presumption.

This hands music publishers, yet again, the short end of the stick.

It appears the deal Apple signed with Warner's publishing arm provides it with more than double the ad revenue Pandora ( P) pays publishers. Pandora pays 4%. Let's assume, as I have seen reported, Apple will give up 10%.

That's 10% of iRadio revenue only, not total iAd dollars. That's not much money at all.

For example, Pandora will generate $372 million in mobile ad revenue in 2013, according to eMarketer. Let's say that's what iRadio produces in its first year. Heck. Let's just say it generates $500 million. That means Apple pays Warner's publishing arm $50 million? $50 million to split up between everybody entitled to a cut equals next to nothing.

That's awful, yet Apple (and Google) can use that valuable music listening data in association with other parts of its business. It will undoubtedly help these companies do a better job targeting ads across their ad networks, not just on the radio product. They can combine this data with other consumption patterns, Maps data and, in Google's case, search data, to create a treasure trove that actually matters within the context of their primary businesses.

Yet, the music industry, directly responsible for this music data -- which, make no mistake, is vitally important -- only gets a sliver of that revenue. The sales attached directly to the radio product. It's perfectly logical to argue that they deserve more because they are absolutely responsible for the revenue their data help produce outside of radio, but within the larger ad networks.

Did any music industry executives bring this up during negotiations with Google and Apple? Will the companies still left to do deals bring it up? Or, maybe it has been addressed and is already part of the deal. Somehow, I doubt that.

The music industrial complex banks on increased digital music sales in the iTunes store (hardly a guarantee). And it -- again -- secures pocket change for publishers. Yet the labels rake in a sweet 16 cents per stream from Apple; more than Pandora pays under the compulsory licensing scheme.

Increased music sales mean nothing to Apple and Google. Tim Cook and Larry Page piss that type of money away on a Saturday night. It pays for the company Christmas party. It's all in the data . . . crucial data gleaned from a loss leader that fuels Apple and Google's empires while providing scraps to songwriters and such.

And the music industrial complex has a problem with Pandora? Remember, Pandora has loads of data and it's more than willing to share.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.

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