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Summary Taylor Swift lights up Apple over plans to stiff musicians. Apple blinked. This creates a huge opportunity for fans & costs Apple a fortune. When pop stars attack Yesterday, Taylor Swift announced that she would pull her album, 1989, from Apple (NASDAQ: AAPL ) Music. My first reaction was: 1989? Someone could have been born in 1989? Jeesh she is young. My second thought is that she writes well and knows how to get what she wants. Her concern is that Apple Music was going to offer a free three-month trial without paying the talent behind the music. So she light them up as, shocking, disappointing, and completely unlike this historically progressive and generous company. She has a point The often exploitative nature of the music industry’s high-priced helpers has long been a complaint of singers and songwriters; what is new is that individual singers are going out of their way to use their clout to push back. After the free three months, Apple intended to pay music owners 71.5% of the subscription revenue, which is consistent with the industry standard. While this would not be problematic for established musicians, it would be a long wait for newer, smaller labels and independent artists. Apple caves It took only seventeen hours for Taylor Swift’s message to get through to Apple. Apple exec Eddy Cue came out on Twitter (NYSE: TWTR ) to say that Apple will make certain that musicians are paid, even during the free trial period. Apple made up with Swift fast . Music arbitrage This turns a potential negative for musicians into a huge commercial bonanza – every singer and band with a big online follower can specifically encourage free streaming for a full quarter of a year with streaming royalties passed on to the musicians. This will cost the fans nothing. This will make their favorite musicians money. It will cost Apple a boatload, but at least they got some good free press. The industry takes a lot out of the artists… now bands and fans can use this free trial period to get a little back. Just keep streaming your favorite music for ninety days starting on June 30, 2015. Powerful interests vs. other powerful interests Businesses – especially hip, modern businesses such as Apple – like to imply that their principles guide the negotiations with their counterparties. The reality is that their behavior is guided primarily by their interests . As a shareholder-owned firm, that is as it should be. Once those shareholders are enriched, they can use those resources to support starving artists or whatever else they want to do. This victory for musicians did not come from trying to argue about principles when it is really about interests. It came from competing interests, and concentrated interests at that. Sure, Taylor can protest that this was never about her and that she can go without pay for a few months… but her protest (again, utterly appropriately) was 100% aligned with her interests. Only when a star with enough clout went head-to-head against Tim Cook did Apple back down. Conclusion Free enterprise has a remarkable knack for restoring equilibrium. In many cases (such as shareholder activism) this self-righting tendency is strengthened by the presence of concentrated interests that can offset other concentrated interests. It can be the very inequality of people such as Taylor Swift that most benefits the types of young, independent artists that are poorly positioned to protect themselves. Rhetorically, Apple executives (and just about everyone else) like to talk about their principles, but they act upon their interests. If they did not, then someone else would and that interloper would quickly take over Apple’s markets. So, if you want to be able to predict behavior, follow interests. Oh, and don’t mess with Taylor Swift . Disclosure: I am/we are long AAPL. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital. Rangeley invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our investors, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law. Scalper1 News
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