Are the major labels in talks with Apple to steer it away from ‘free’?

Reports from overseas suggest that Apple’s June-due music streaming service will not have a free tier option as rivals like Deezer and Spotify have. Instead, it wants to charge a monthly subscription fee for all users after an initial trial period.

But Apple is apparently feeling the heat from record labels about the pricing.

Apple wants to set the price at US$7.99 a month, which is lower than its rivals. But during licensing negotiations, the labels insisted it charge $9.99.

This demand is part of the labels’ growing mindset that unlimited free streaming merely devalues music in the eyes of consumers. Even more, their emerging acts are making next to nothing from such services.

Their push for the other services to introduce pay-only offerings was met with limited success. So they figure the lure of the Apple brand (iTunes has 800 million accounts) is the most effective way to bring consumers back to (and get used to) paid models only.

The record companies, so the reports go, told Apple that if it does opt for $7.99, then it will have to absorb the difference. That could mean Apple face a loss from the service. But the labels are standing firm. Apple after all posted revenues of $42.1 billion and net profit of $8.5 billion alone in its financial 2014 fourth quarter ending in September. It expects to turn over revenue between $63.5 billion and $66.5 billion in the first financial quarter of 2015.

What the labels have over Apple is that the company is angling for exclusive music content, or getting the latest music tracks first, to compete with rivals.

Initially, labels tolerated free digital music because it counter-balanced the falling of revenue from CDs and the lure of piracy. But a change of attitude has come in the past three years.

Universal Music Group for instance is rethinking its entire digital strategy after the departure late last month of its President of Digital, Rob Wells, who brokered deals with “freemium” services.

Sony Corp’s chief financial officer Kevin Kelleher recently told investors that in four years’ time, the music industry will derive 60% of its total revenue from premium (paid for) subscription services. Any free offerings are a threat to achieving this, he commented.

"The key question is, are the free, ad-supported services taking away from how quickly and to what extent we can grow those paid services?” Kelleher said. "That's something we're paying attention to as content owners who license our content to the different platforms. It's an area that's gotten everyone's attention."

Spotify has 60 million users, of which 15 million are paying subscribers. Deezer has 16 million listeners a month and 6 million subscribers. In contrast, Rhapsody, which has a paid-only model, reached 2.5 million subscribers last month, Billboard reported.