Apple may plan ad-funded iTunes music sales

itunesdownloadHot news from the analysts at Music Ally, who recently pored through transcripts of a hugely important UK Copyright Tribunal case to surprisingly find out that Apple’s iTunes has some ambitions toward launching an ad-supported music service.

We’re not going to give out all the information on the matter – you’ll have to contact leading UK music industry analyst firm Music Ally to find out more, but Judge Fysh QC, presiding over the Tribunal, was driven to state, “iTunes may well carry advertising in future”.

The Tribunal began in June 2005, when online services including Napster, AOL, iTunes and the mobile carriers joined forces with UK music industry association the BPI in an attempt to force change in UK licensing rules for use of music online and through mobile services. The primary disagreement concerned the royalty rates payable for a la carte downloads. rental or subscription services and webcasing.

A new rate was reached one year later. Now, we’re not going to explore the final decision, but we’d like to share iTunes VP Eddie Cue’s witness statement to the Tribunal that iTunes would only pay advertising revenue where it is earned “as a result of an advertisement, sponsorship or a click-through link located on a Licensed service … and only where the Licensed Service is offered to the user at a price which has been artificially depressed to reflect such revenue.”

What Music Ally found is that Apple has advanced contingency plans (by which we mean the company may never exercise such plans) for the introduction of ads-supported music services. These plans could make it possible to purchase a track for free or at a discount on condition some kind of ad is embedded into the track, a la We7’s streaming services. Or, potentially, as an ads-supported music streaming service, beefed-up with best in class a la carte music download sales.

Now, we’re not saying Apple is going to launch such services. All this proves is that it has a contingency plan, though a statement from one “active participant” in the Tribunal lends some weight, as “Apple fought the point and seemed to think it was important”. The point being that ads-supported songs should theoretically be made freely available without need to pay a royalty on the exchange, presumably assuming the song sale had been paid for through other means.

More telling, Apple was able to present the Tribunal with a complete model of how it would like an ad-supported music service’s revenue structure to work. The Judge didn’t admit this into the case decision, but an exception was made which offers online music providers some additional flexibility in terms of ad-supported sales.

Music providers will be able to associate advertising with music and then sell it at a reduced rate. They will still have to pay the minima on downloads and a percentage of revenue on advertising revenue, in other words, the way’s clear for iTunes should it want to adopt such a strategy.

To be honest, we’re left with a whole heap of questions, but think Music Ally may have some more answers, signing off we’ll recap the words of the Tribunal Judge.

“iTunes may well carry advertising in future”.

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