Why Apple Music Could Leave Record Labels 'Completely Screwed'

With only two weeks remaining until Apple Inc. (NASDAQ: AAPL) launches its new streaming music service, Apple Music, the company is facing backlash from the music industry about the terms of its initial three-month free trial period.

The Telegraph recently reorted that discontent among record labels could end up costing Apple crucial music content as it sets out to gain market share from rivals Spotify and Pandora Media Inc (NYSE: P).

The Terms

According to Re/code, Apple’s contract with record labels, which was announced just three weeks prior to the launch of Apple Music, allows Apple to stream record labels’ music catalogs for three months without paying the labels a dime. After Apple Music’s three month trial period is up, the service will cost customers $10 per month and record labels will be paid more than 70 percent of the service’s revenue.

This 70/30 revenue split is typical for the streaming music industry, and is similar to the revenue-sharing deal used by Spotify.

Related Link: Why Apple's 'Me-Too' Music Service Was The Worst Part Of WWDC

Assuming The Risk

UK Music chairman Andy Heath claims that the terms of Apple’s agreement with record labels leaves the companies “completely screwed” for three months.

“If you are running a small label on tight margins you literally can’t afford to do this free trial business,” Heath told The Telegraph. “People will say ‘oh but you’re on Spotify.’ Well yes, but we get paid for that.”

Backlash

The idea that Apple is sitting on billions of dollars of cash and is essentially making small record labels assume all the the risk in the first three months of its streaming service has caused some record labels to consider turning their backs on Apple all together.

Heath explained that, to his knowledge, no independent British labels have agreed to Apple Music’s terms. These labels include XL Records, the home of British sensation Adele. Adele’s album "21" is the highest-selling album of the last decade.