Apple Threatens to Close iTunes Store if Royalty Rates Go Up 66pct

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Apple Threatens to Close iTunes Store if Royalty [crn.com]Rates Go Up 66pct

Apple is threatening to shut down its iTunes Store if the Copyright Royalty Board rules in favor of a request made by the National Music Publishers' Association. The three-member board is expected to meet this week to determine whether or not raise the royalty fees Apple pays. The National Music Publishers' Association is looking to increase the rates between 9 cents and 15 cents for each song downloaded, a 66 percent hike. Apple, not surprisingly, is fighting the proposal and instead supports a royalty raise of between 4 percent and 6 percent.

Eddy Cue, iTunes vice president, wrote that the National Music Publishers' Association's increase could force Apple to close the iTunes store. Cue cites the $0.99 price point as critical.

[Lord Majestic]

It's a bluff - they won't close it.

[incrediBILL]

We're talking about a SIX CENT increase which is hardly a large increase as the 66pct hoopla in the title implies.

Besides, when does Apple have the right to dictate how much artists should earn?

Talk about being bullies...

[travelin cat]

Besides, when does Apple have the right to dictate how much artists should earn?

They're not dictating how much artists should earn, they are dictating how much THEY earn. The NMPA dictates how much artists earn.

Bullies? No, protecting their assets? You bet. Take 6 cents and multiply it by how many songs are sold per day. I don't have the figures, but I'm sure it's very substantial.

[akmac]

Six cents is quite a bit-considering it's a 99 cent transaction. I don't think apple is making much from the itunes store, as its primary purpose is to sell ipods and promote the apple brand (contrary to what they say).

With 4 billion songs sold since itunes launched (in 2003) and margins measured in pennies, their profit from direct music sales is in the millions-a small fraction of total revenues over that time period.

I agree that it's a bluff, but I would do the same thing in their position. Look at it from an Itunes VP perspective:

How would you react to a union asking for 6% of your gross sales?

[incrediBILL]

They're not dictating how much artists should earn, they are dictating how much THEY earn.

What? When you threaten to close the store over 6 cents you're dictating to the artists.

Just raise prices a dime, then Apple gets 4 cents more than they got before, and if people can't stand a 10 cent bump you might as well close the store.

If sales slump they all lose, the artists might then reconsider and back off.

However, I don't think Apple bumping prices 5-10 cents is going to stop sales.

[travelin cat]

Apple is dead set at keeping the pricing the same for the end-user. A raise in their costs will lower their ROI to what they obviously consider to be an unacceptable level.

[incrediBILL]

Then Apple should just close shop now as that's quite silly.

[jimbeetle]

Bullies? No, protecting their assets? You bet.

Nope, you have it backwards here. The songs ain't Apple's assets, they belong to the artists.

[travelin cat]

I meant that the iTunes store is an asset on Apple's Balance Sheet.

[travelin cat]

Well, it's all moot now. From the WSJ:

The Copyright Royalty Board on Thursday left unchanged the amount record companies will pay songwriters for the sale of CDs or digitally downloaded songs. The three-judge panel said the record companies will continue to pay 9.1 cents a song, while the National Music Publishers Association had sought an increase to 15 cents a song.

[incrediBILL]

Rats, I wanted to see the increase just to watch it hit the fan.