iTunes to Shutdown?

October 2, 2008 | Leave a Comment

Wired news reported that Apple has threatened to shut down iTunes music if a three-person board appointed by the Librarian of Congress increase royalties paid to publishers and songwriters by six cents per song.

If increased, the royalties paid to publishers and songwriters for digital downloads would increase from 9 cents to 15 cents per song. The decision by the Copyright Royalty Board is scheduled to be handed down today, Wired said.

Wired goes on to report that Apple said that if the rate hike goes through and the labels refuse to absorb the entire resulting increase, the iTunes music store will become unprofitable.

The article goes on to further state:

“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 Apple iTunes vice president Eddy Cue in a statement filed with the board last year, according to Fortune. “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.”

65 cent to 70 cent out of 99 per song is paid to artist and labels by Apple and 9 cents of that is passed on to publishers. Apple contends that a 66 percent increase in publishing royalties to 15 cents per song requested by the National Association of Music Publishers is too much for the company to bear, according to Wired.

Apple could add the extra 6 cents to make up the difference, but that would go against it’s allure of 99 cents song, according to the article.

The labels would be fine with Apple doing this, but Steve Jobs is unlikely to raise the price. The labels have been pressuring Apple to budge on its 99 cents per track policy for years, but as for now, Apple hasn’t budged.

As for the record labels absorbing the entire cost increase seems unlikely. The 15 cent per song publishing royalty would gobble over 20 percent of their per-song revenue, according to Wired.

And since the present rate of 9 cents per track has been in effect since 1996, the publisher says it’s high time for an increase, wrote Wired.

Stay tuned for the Drama.

Update: A deal has been reached to keep the present royalty pay-out for the publishers and songwriters. Great news for consumers; not so great news for artist.

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iTunes to Shutdown?

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