On Jan. 22, Apple Music sent a letter to its label partners across the music industry, announcing an ostensibly positive new change to its royalty policy: that it would be paying out up to 10% more for tracks delivered in spatial audio — the hi-resolution, 360 audio format in partnership with Dolby Atmos that Apple has invested heavily in over the past few years.
On its face, the new policy seemed like a boon: In a streaming environment in which each stream is still worth a fraction of a penny, wouldn’t any rate increase be a good thing?
Not necessarily, say several independent labels, distributors and trade groups who have spoken to Billboard about Apple’s new policy change. Some are concerned that the new uplift for spatial audio streams may even lead to labels and artists losing money — due to the cost of a new spatial audio mix that can be hard to recoup, as well as the fact that it reallocates the existing royalty pool, rather than adding to it. That’s in addition to technical, creative and practical concerns that some have come up against in trying to adapt to Apple’s push into the format.
“Spatial audio can be an interesting format when the artist elects to use it, [but] this should remain an artistic decision; for some music, forcing a spatial mix is the equivalent of hanging a digital 3D version of the Mona Lisa and expecting Louvre patrons to prefer it,” one source tells Billboard. “We prefer recording artists and producers maintain the freedom to choose whether to deliver a spatial mix, without being financially penalized.”
Spatial audio was first announced by Apple Music in May 2021 and rolled out the following month for no cost to subscribers, touted as a new frontier in audio technology that Apple executives said was “like magic” and “a real game-changer.” It’s true that spatial is a monumental technology in the audio space, with its immersive platform transporting the listener into the center of a room, with a song’s different elements coming from all around them. But it’s not the technology that these artists, labels and distributors are pushing back against; many of them support the format and agree that it can be transformative and have no other issues with Apple. It’s the new royalty model, and Apple’s particular emphasis on spatial at the expense of standard stereo mixed tracks, that are raising concerns.
The biggest issue is cost. Sources tell Billboard that a spatial audio mix can cost around $500 per track, or anywhere between $2,500 to $5,000 per album, with one putting the cost as high as $15,000. (Cheaper options as low as $50 per track exist online, though Apple is said to discourage those options because they do not meet its standards. The reality, however, is that there is no universally accepted industry standard, and some labels are using these services anyway, justifying them as the only way to convert catalog efficiently enough.) That’s difficult for many indie labels, whose margins can often be akin to a small restaurant, where cash is at a premium and wiggle room is often extremely thin.
Apple acknowledges that, and said it was a reason for offering an uplift in streaming royalties for spatial: “This change is not only meant to reward higher quality content, but also to ensure that artists are being compensated for the time and investment they put into mixing in Spatial,” Apple’s letter read. But several sources say that the uplift is not without strings: In order to qualify for it, they claim, a label or distributor must be getting more than 50% of its revenue from tracks that are at least available in spatial audio. That would put pressure on indies to convert their often more lucrative back catalogs — albums older than 18 months accounted for 72.6% of album consumption units in the United States in 2023, according to Luminate — in order to hit the 50% threshold. (Apple says this isn’t true, and that all tracks delivered in spatial qualify for the uplift; it says the 50% threshold relates to a separate deal, wherein if a label reaches 50% of its catalog availability in spatial, there is an additional uplift for which labels can qualify.)
Even then, the return from the uplift may not offset the outlay on mixing for spatial, sources say, particularly for smaller indies, labels with younger or developing artists, or those with genres or artists that don’t typically stream very well. Several label sources also said that Apple won’t playlist songs or will withhold valuable space on the Apple Music homepage — where there is a dedicated section for new releases in spatial — if songs aren’t delivered using the format. And since spatial is an Apple Music-only initiative, those dealing with the financial issues can’t get a higher rate at any other digital service provider (DSP) for mixing tracks in spatial. “On one side, we understand Apple needs to develop their own strategy, but on the other side the new deal will badly impact our revenues,” one indie label executive says. “In order to be able to maintain a same level of revenue [this year] vs. 2023 we would need to invest a minimum of $200,000 in spatial, [across] new releases and catalog.”
“Spatial audio is a key differentiator for Apple Music, consistent with its positioning to provide a high audio quality and strongly curated music experience,” Believe founder/CEO Denis Ladegaillerie said in a statement provided to Billboard. “We respect Apple’s policy to incentivize spatial audio mixing and have taken the decision to invest in studio capabilities to help our artists and labels benefit from this change. We expressed our concern that the increase in the royalty rate for spatial audio content might impact local independent artists and labels and we are working closely with Apple Music to find solutions to lower the cost of high-quality spatial audio creation for independent artists, especially in smaller markets.”
But there are other concerns that go beyond money. “Some older catalog may not still exist in a format where you have all the individual stems to be able to go back into the studio and re-version it into spatial audio, so depending on what sort of master tapes may or may not still exist, how old the recording is, there’s a practical challenge that means that some existing catalog just can’t be turned into spatial,” says Silvia Montello, CEO of the U.K. indie sector trade body AIM. “And then artistically, if you have an artist who is concerned about their artistic output and how they sound and the placement of the music that they’ve made, then they presumably want to be consulted or involved or actually manage that process themselves. And again, that’s something that is out of the reach financially of some of the independent labels, and also out of reach of the artists as well.”
“On catalog, the issue is not just on the price, it’s also on the nature of the master itself — we don’t always have stems available and artists sometimes do not want to alter their original master,” says one label executive. Adds another: “Being able to recreate stems is expensive and being able to bring back artists in studio for back catalog is complicated.”
Apple says it does not expect all content to be delivered in spatial, particularly given some of the challenges with catalog stems, but that the uplift is meant to encourage it where possible. It also says that 90% of the indie label community, as measured by streams on Apple Music, is already delivering in spatial, that indies have delivered more than double the amount of spatial content year over year, and that more than 60% of the top indie albums released in the past year are available in spatial. Further, it says that the number of songs available in spatial has increased nearly 5,000% from the thousands it had available at launch in mid-2021, and that spatial audio plays have tripled in the past two years.
Still, while the indies are voicing their concerns, they will ultimately have little choice but to go along with Apple’s changes. “No small or big indie can afford not to be on Apple Music,” one executive from a larger indie label says. “So the answer here is: none of us indies are in a position to push back on accepting these new terms regarding spatial.”
The indies see this as part of the continuing debate over music royalty reform that was opened last year when the likes of Deezer, SoundCloud and Spotify began announcing changes to their royalty models. The basic conversation around that has been one of fairness, to indie labels and artists in a world that seems increasingly dominated by the majors and bigger platforms.
“We fully agree that the streaming ecosystem has yet to reach its full potential, and things are now in motion,” European indie trade group IMPALA tells Billboard in a statement. “However, we believe it is imperative for open and constructive discussions to continue to sculpt a streaming landscape that boosts diversity and local markets, to the benefit of services, labels, artists and music fans alike.”
“We don’t want to go to war with anybody, but equally we are concerned that the playing field is getting less and less level as we go along, and we may be starting to see a two-tier system as opposed to a standard stream rate that you can rely on,” Montello says. “We’re really committed to working with the platforms on as much as possible and having an open dialogue with them so that they understand what the impact of any changes around royalty pay-throughs actually mean for the independent sector, for emerging and developing artists, for smaller labels, for less mainstream genres and smaller marketplaces.”