Report: Could Publishing Hike Shut Down iTunes?
October 1, 2008 at 5:07 AM (PT)
A ruling TOMORROW by THE COPYRIGHT ROYALTY BOARD on THE NATIONAL MUSIC PUBLISHERS' ASSOCIATION request to increase royalty rates on songs purchased from online music stores could dramatically disrupt online music retail, FORTUNE reports.
If the publishers group gets what it wants -- a 66% increase, from 9 cents to 15 cents a track -- iTUNES VP EDDY CUE warned that APPLE would consider shuttering its iTUNES store instead of absorbing higher royalty costs, or raising its current 99 cents-a-song price.
Apple is in this business to make money, and most likely would not continue to operate [iTunes] if it were no longer possible to do so profitably.
"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 reason APPLE is so resistant to the publishing rate hike is that since iTUNES profitability already thin, it would have to raise the price of the music or lose money. End result: "I have no doubt that an increase in the per track price would lower total music purchases at the store," CUE said. THE DIGITAL MEDIA ASSOCIATION went further, predicting that any rise in online music pricing would send consumers back to illegal P2P avenues.
For each track sold, APPLE pays an about 70 cents of every dollar it collects to the appropriate label. The label then pays music publishers nine cents and a certain percentage to the artists. While some observers scoff at the threat, citing iTUNES' impact on fueling iPOD sales, the labels have mixed emotions on the situation. While it's no secret that some on the label side want to break the iTUNES monopoly (PIPER JAFFRAY estimates that APPLE will sell 2.4 billion songs in 2008, about 85% of the digital music market), they don't want to give the publishers any more money, either. In fact, they asked the COPYRIGHT ROYALTY BOARD to abandon the fixed per-song payment in favor of assessing a piece (8%) of wholesales revenues
THE NATIONAL MUSIC PUBLISHERS ASSOCIATION, not surprisingly, isn't impressed with APPLE's threat or the labels' counter-offer. "I think we established a case for an increase in the royalties," Pres. DAVID ISRAELITE said. "APPLE may want to sell songs cheaply to sell iPods, [but] we don't make a penny on the sale of an iPOD."