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What happens to your $10 after paying for Apple Music

Apple Music screens
Source: Apple
Apple Music screens

You don't have to pay anything to try Apple's new streaming music service, since the company will offer a free three-month trial when it launches at the end of June.

But if you stick around after that, you'll need to pay $10 a month for the on-demand, all-you-can-eat subscription service. And Apple will end up passing along more than $7 of that to music labels, music publishers and other music owners.

The fact that Apple will pay music rights owners around 70 percent of its revenue shouldn't be a surprise to industry music observers, since that's a fairly standard ratio. But the issue came up last week when a copy of an Apple Music contract surfaced online, along with the suggestion that Apple was only going to pay out 58 percent of its revenue.

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Here are the real numbers, according to Robert Kondrk, the Apple executive who negotiates music deals along with media boss Eddy Cue: In the U.S., Apple will pay music owners 71.5 percent of Apple Music's subscription revenue. Outside the U.S., the number will fluctuate, but will average around 73 percent, he told Re/code in an interview. Executives at labels Apple is working with confirmed the figures.

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Those totals include payments to the people who own the sound recordings Apple Music will play, as well as the people who own the publishing rights to songs' underlying compositions. That doesn't mean the money will necessarily go to the musicians who recorded or wrote the songs, since their payouts are governed by often-byzantine contracts with music labels and publishers.

Apple won't pay music owners anything for the songs that are streamed during Apple Music's three-month trial period, a bone of contention with music labels during negotiations for the new service. But Kondrk says Apple's payouts are a few percentage points higher than the industry standard, in part to account for the lengthy trial period; most paid subscription services offer a free one-month trial.

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The big exception to the industry standard is Spotify, which offers a $10-a-month paid service, along with free versions that offer unlimited, ad-supported, on-demand music on desktop PCs, and more restricted free music on phones. Apple has campaigned against Spotify's freemium model, and top label executives have pushed Spotify to pull back on free as well.

Spotify spokesman Jonathan Prince points out that Apple offers its own free music via its iTunes Radio service, and will offer more via the Beats 1 radio service that it will launch alongside its paid service; Apple will pay music owners a much lower fee for music streamed on those options, which don't allow them to call up songs on demand. Says Prince: "We pay royalties on every single listen, including trial offers and our mobile free custom radio service, and that adds up to approximately 70 percent of our total revenues, as it always has."

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Apple's pitch to the music industry, essentially, is that its seven-tenths of a dollar will be worth much more than Spotify's seven-tenths of a dollar in the long run, because its free service isn't meant to compete with its paid service, and because it will sign up many more subscribers than Spotify, which says it has 20 million paying users.

That's a theoretical argument for now. We can start judging for ourselves on June 30.