What is Apple’s iCloud cut?

By Philip Elmer-DeWitt06/03/11  tech.fortune.cnn.com

A flurry of last-minute music industry deal-making, a cloud of confusion

Source: L.A. Times

You might think that Apple (AAPL), having labored for more than a year to get its new music and video streaming service — dubbed iCloud — ready for prime time, would have nailed down the necessary digital rights before making any public announcements.

But that’s not the way negotiations work, especially in the entertainment industry. So it wasn’t until Thursday, with only one business day left before Steve Jobs was scheduled to unveil the new service, that the last hold-outs began leaking the news that they had cut their deals with Apple.

Even then, there was plenty of confusion about the terms. According to the initial report in the L.A. Times, Apple was to keep 58% of any iCloud music revenue, the major labels would get 30% and the music publishers 12%.

CNET, meanwhile, was reporting a very different arrangement: The labels would get 58%, the publishers 12% and Apple its usual 30%. By Thursday afternoon the L.A. Times had issued a correction and was reporting the same three-way split.

But even that was in doubt. According the New York Times, the publishers had been offered 10.5% and were able to negotiate their rate up to 12%. But it was not clear to the Times sources “whether the 1.5 percent difference would come out of Apple’s share or the labels’ share.”

Further complicating negotiations was the size of the signing bonus — between $25 and $50 million each, according to Friday’s New York Post — that Apple had to offer the labels as an incentive to get on board.

And what about iCloud movies? There was no news Thursday about any deals with the Hollywood studios, which suggests that the hardest bargaining hasn’t even started.



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