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Tuesday, September 30, 2008

More Fun with Royalties

posted by on September 30 at 11:27 AM

NEW YORK (Fortune) — For five years, Apple’s iTunes Music Store has been the Internet’s most successful music store. But now that music publishers are seeking a higher share of its proceeds, Apple is threatening to shutter iTunes.

The Copyright Royalty Board in Washington, D.C. is expected to rule Thursday on a request by the National Music Publishers’ Association to increase royalty rates paid to its members on songs purchased from online music stores like iTunes. The publishers association wants rates raised from 9 cents to 15 cents a track - a 66% hike.

Apple (AAPL, Fortune 500) declined to discuss the board’s pending decision. But it adamantly opposes the publishers’ request. In a statement submitted to the board last year, iTunes vice president Eddy Cue said Apple might close its download store rather than raise its 99 cents a song price or absorb the higher royalty costs.

“If the [iTunes music store] was forced to absorb any increase in the … royalty rate, the result would be to significantly increase the likelihood of the store operating at a financial loss - which is no alternative at all,” Cue wrote. “Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate [the iTunes music store] if it were no longer possible to do so profitably.”

The Copyright Royalty Board is a three-judge panel that oversees statutory licenses granted under federal copyright law. That includes setting royalty rates for music sales. The current proceeding followed the expiration last year of a 1997 decision that had governed sales of so-called physical music products like CDs for a decade. The board’s forthcoming decision, its first affecting digital sales, will set royalty rates for the next five years.

It’s hard to believe that Apple will actually shut down iTunes if it doesn’t get its way. Apple has shrewdly used the store to help sell iPods, its most popular product. Before the computer manufacturer opened the store in 2003, there was virtually no place for iPod owners to purchase digital music on the Internet. So iTunes helped grow the market for the device by appealing to people who didn’t want to patronize illegal file-sharing services and risk a music industry lawsuit.

Publishers don’t seem to be buying the bluff either.

They argue that the digital music market is growing and that they should get a higher rate because all parties in this squabble will ultimately prosper. “I think we established a case for an increase in the royalties,” said David Israelite, president of the National Music Publishers Association.

Israelite said he opposed any attempt by companies like Apple and its record label allies to do away with the fixed royalty rate. “Apple may want to sell songs cheaply to sell iPods,” he said. “We don’t make a penny on the sale of an iPod.”


RSS icon Comments


Close iTunes?? Yeah, fucking right.

Even if the service operated at a loss (which it wouldn't), Apple is still killing it in hardware sales with ipods, etc. that the general public rely on using iTunes with.

Posted by $$rich!! | September 30, 2008 11:32 AM

can apple (or anyone) really argue that it costs more than $0.84 to transfer 4-8 megs of data?

Posted by cosby | September 30, 2008 11:55 AM

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