October 1st, 2008

Apple to music industry - It’s our way, or iTunes gets the bullet!

Posted by Adrian Kingsley-Hughes @ 6:06 am

Categories: Apple

Tags: Apple Inc., Apple iTunes, Digital Music, Digital Media, Personal Technology, Consumer Electronics, Adrian Kingsley-Hughes

The National Music Publishers’ Association wants to see an increase in the royalty rates paid to its members for songs purchased through online music stores (the association wants the rates raised from 9 cents to 15 cents a track). Apple doesn’t like the sound of this and is willing to shut down iTunes rather than raise the 99 cents a song price or absorb the higher royalty costs. Is this all just hot air, or could Apple really shut down iTunes?

Here’s what Apple said to the Copyright Royalty Board (PDF, page 4):

If iTS were forced simply to absorb any increase in mechanical 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. Apple has repeatedly made clear that it is in this business to make money, and most likely would not continue to operate iTS if it were no longer possible to do so profitably.

Apple doesn’t seem willing to make a compromise there - it’s Apple’s way or iTunes gets the bullet. But how likely is it that Apple would pull the plug on iTunes?

Note: Let’s ignore for now the side argument of the dangers of letting one outlet grab too much of the market share and be allowed to dominate the discussion …

How likely? Highly unlikely. iTunes accounts for some 85% of the digital music sold, so that’s not something that Apple is going to give up without a fight. Also, the tie between iTunes and the iPod is strong, and there’s little doubt that one appeal of the iPod is how easy it is to buy music for it through iTunes (Apple would also be handing all those customers over to the likes of Amazon). On top of that, Apple is unlikely to want to bring upon itself the wrath of disgruntled customers (imagine the screams if Apple pulled the plug on the DRM servers …). On the other side, you have the music industry. No one here will want to see 85% of digital sales evaporate.

Number crunching: Let’s put the numbers into perspective. Out of ever dollar collected by Apple, 70 cents goes to the record company, out of which 9 cents goes to the copyright holder.

Put simply, Apple’s statement is full of puff, and a deal is certain, and it’s likely that royalties won’t increase. In fact, I’d go further to suggest that is this a PR trick by Apple to make the music industry seem grabby (while making Apple seem like the protector of the consumer).

Thoughts?