More specifically, Apple and Sony Music, the world's second-largest music label, are still trying to hammer out details over how much Apple would pay for songs that people listen to a fraction of and then skip, according to people familiar with the negotiations. There could be other points of contention as well.
Sony declined to comment. An Apple spokesperson wasn't immediately available.
Apple last week reached an agreement with Universal Music, the world's largest label, and it's very close to finalizing its deal with Warner Music Group, sources say.
That skipping has become an issue is frustrating executives at the other labels because they see Apple's free radio service as a potential boon for the music industry overall and are eager to help the company get it launched. Streaming music is the fastest-growing segment of the recorded music industry, and Apple's offering, designed for the iPhone and linked to iTunes, could speed the growth of Internet radio that much faster.
What also excites some music executives about Apple's planned service is that it includes two other streams of revenue, adding up to an overall deal that should be far sweeter than what the labels get from Pandora. That includes a quick way for users to purchase a song they're listening to, and a slice of the ad revenue that Apple earns. Apple has told the music labels that it plans to build out its iAd business, including the potential of adding audio ads such as those heard on Pandora's free service.
All this comes as Apple is feeling more pressure. Google this week rolled out aSpotify-like subscription music service, and, according to sources, is gearing up to launch another music service tied to YouTube.
In some ways, Apple is in this bind with Sony because it's doing direct deals with the music labels instead of taking the Pandora route, which has its terms set by federal statute -- a setup that the labels dislike because it makes them little money and limits Pandora's ability to expand. While Pandora is available in the U.S., and, more recently, in Australia and New Zealand, Apple is aiming to quickly roll out the service in at least a dozen countries.
Even Pandora's song-skipping rules are set under the 1996 Digital Millennium Copyright Act. Free Pandora accounts permit six skips per hour per station, for up to 12 total skips per day across all stations. What exactly is a skip? It's not just if you skip the song, but if you give it a thumbs-down rating or choose "I'm tired of this track" in the menu. In any of those instances, Pandora must pay full royalties for the song, even if it only plays for a few seconds.
While it's unclear what Sony is asking for, it's certainly more than what Pandora pays. And if Apple bends for Sony on this issue, it would cause problems with its deals with Warner and Universal. Apple currently has the same licensing deals with the major labels and publishers -- where Apple pays the rights holders 70 percent of every dollar it brings in -- and it's seeking a uniform deal for its new service as well.
That was a long time ago. More recently, Morris talked up the importance of streaming and digital music in general, as he did in this recent profile in BloombergBusinessWeek. So it's hard to tell how much of Sony's current stance is a basic negotiating tactic, or ongoing suspicion when it comes to dealing with the still-powerful Apple.