Apple won't pay royalties during Music's trial period

A leaked Apple Music contract surfaced last week containing details about how it plans to compensate indie labels for music streamed during the trial period. According to the document Apple won't pay royalties to independent music labels -- or unsigned artists, we'd imagine -- while users test drive the app. Re/code confirmed that the company won't pay royalties to any labels, major or indie, for tracks users stream during the trial in an interview with Apple's Robert Kondrk, an executive who is in on the negotiations.

Kondrk also explained that while it won't make payments for trial-period tunes, it will pay a bit more than the usual rate: 71.5 percent of revenue in the States and 73 percent outside of the US. Spotify has been clear that around 70 percent of its revenue goes to licensing fees and it told Re/code that it does in fact include songs played during its one-month trail in those payments. That means $7 (or more) of the $10 monthly rate goes towards royalties.

According to Music Business Worldwide, Apple is negotiating directly with major labels to lock down licensing deals for the service. What's more, rather than hammer out terms with Merlin, a company that handles licensing agreements for a collection of independent labels, Apple insists on dealing with each record label directly. Sources involved in these negotiations tell Engadget that while indies have worked directly with Apple on deals in the past, that was before Merlin existed. But now that labels prefer to do business through Merlin, Apple doesn't want to play ball, say the sources, who asked to remain anonymous.

In contrast, SoundCloud, recently worked with Merlin on a streaming agreement that allows music from 20,000 independent labels to receive royalties. For reference, Merlin represents labels like Matador (Ceremony, Savages), Domino (Animal Collective) and Razor & Tie (All That Remains).

Apple is also facing scrutiny from state governments looking into whether or not the company is working with major labels to shut out services with free tiers -- like Spotify, Pandora and others. So far, state officials in New York and Connecticut haven't found any evidence of wrongdoing, but the investigations are ongoing.

A source at one label tells Engadget that it nor any of the other indie labels that they have been in contact with plan on signing the contract as it stands. This means that right now, Apple Music stands to miss out on quite the collection of indie artists when it launches at the end of the month. Of course, there's time between now that then to work out some better terms, but things aren't looking good at the moment.

Apple did not respond to our request for comment. We will update this story if it does.