Apple Threatens To Close iTunes Music Store Pending Copyright Board Decision
Apple is threatening to close down it’s massively popular iTunes Music Store pending a ruling this Thursday by the Copyright Royalty Board in Washington, D.C. The National Music Publishers Association is demanding that Apple raise their rates from $0.09 per track to $0.15, a 66% increase. However, Apple refuses to raise the price for consumers, and rather than absorb the cost and operate at a loss, they would simply close the store down.
“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,” wrote iTunes VP Eddy Cue. “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 consists of three judges that oversee statutory licenses granted under federal copyright law, which includes royalty rates for selling music. Their decision on wether to increase rates will remain in effect for the next five years.
Apple will sell around 2.4 billion songs this year according to estimates from Piper Jaffray, which will account for 85% of music sold. Still, despite controlling most of the market, their profits from the iTunes store are small, in large part due to their belief that the market can’t handle a price higher than $0.99 per song. “I have no doubt that an increase in the per track price would lower total music purchases at the store,” the Apple executive said in his statement.
In addition to the $0.09 they pay in royalties now, they pay record companies $0.70 of the $0.99 they get. However, record companies aren’t willing to pay the 66% increase, but are instead asking Apple to foot the bill.
Still, “I think we established a case for an increase in the royalties,” said David Israelite, president of the National Music Publishers Association. “More importantly, we were able to beat back the proposal that could be a [royalty] cut.”
“Apple may want to sell songs cheaply to sell iPods,” he said. “We don’t make a penny on the sale of an iPod.”