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Summary:

Earlier today Reuters reported that Universal Music, the largest music company in the world, may soon ask Apple for royalties on each iPod sold. One can hardly blame Universal for wanting to push this envelope, given that Microsoft opened the can of worms by offering to […]

Earlier today Reuters reported that Universal Music, the largest music company in the world, may soon ask Apple for royalties on each iPod sold. One can hardly blame Universal for wanting to push this envelope, given that Microsoft opened the can of worms by offering to pay Universal a royalty on each Zune sold (which, given current sales, probably totals about $3.75).

I’m no music industry expert, but from what I can gather, the logic goes something like this: People use iPods (or Zunes) to illegally share music that may have also been acquired illegally, so Apple (or Microsoft) should have to pony up to help pay for the losses. Whether or not these royalties actually cover the losses or ever land in the hands of the artists is up for debate.

The truth of the matter is that consumers are not buying enough digital music to make up for crumbling CD sales. According to some recent data, the average iPod has only 20 ITMS songs on it, which makes the iPod remarkably profitable for Apple, but not eh music industry.

Asking for royalties may sound like a bit of a greedy stretch by Universal, but this kind of royalty isn’t entirely unheard of — at least in a tamer form.

The Audio Home Recording Act of 1992 mandated blank cassette and CD manufacturers to pay a percentage of each sale to offset loss of sales due to unauthorized copying. This legislation was lobbied for by our good friends, the RIAA. What makes the AHRA different, however, is that these royalties are funnelled into the office of the Register of Copyrights and not the record company’s pocket book.

My question to you, dear TAB reader, should Apple follow suit and start forking over royalties to the major record labels of the world? Is a slightly more expensive (or less profitable) iPod worth saving the $0.99 price point on the ITMS? Or should Apple and the rest of the digital music world wait for copyright law to catch up before setting costly revenue-sharing precedents?

  1. If they want us to pay royalties on the iPod or Zune, the RIAA should stop suing iPod owners who pirate music. At least, stop suing people who pirate Universal-owned music exclusively.

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  2. I think Ars had a good point:

    http://arstechnica.com/news.ars/post/20061128-8309.html

    If the idea is to compensate Universal for stolen music, then, in exchange, it should be totally legal to download and share music for filesharing sites. DRM should be abolished, etc., etc.

    Won’t ever happen, but a useful thought experiment.

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  3. I see it this way, if I’m paying royalties I feel free to download music from p2p or any other place given the fact that I alredy payed for it when I bought the player.
    A piece of information for those who don’t know, the blank CDs and DVDs alredy have a royalty fee.

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  4. The difference between this and legislation is that ONE music company is getting a dollar for every Zune sold. That gives leverage to every single music, movie and TV company to come in and ask for the same. And that would be ridiculous.

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  5. My sentiments exactly, Jamie.

    But since this is the way we’re going to do business, I think I may ask Apple for a cut of iPod sales too — someone just might copy this post to their iPod without my permission.

    Once can only hope that Jobs has enough backbone to flat out refuse a proposal like this from Universal or anyone else.

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  6. Jamie, you’re absilutely correct. Microsoft paying one, two or three record companies a small percentage of each Zune sold is not a huge hit to them. Apple, with a more robust library of television studios, film companies, etc. would either a) cause Apple shareholders some grief or b) come out of our pockets. Personally, I love Apple product as well as the company so if they charged me $3 – $5 more for an iPod for that very reason, I would probably pay it. But we all know the two people who get screwed in a scenario like this is us and the artist. As it stands artists are not being paid their due royalties because what happens is that the record company licenses their entire catalogue to Apple, once it sells on iTunes there is not a reporting mechanism currently in place for artists to see what they should be paid.

    Apple is legally distributing their music, the record company has been paid for this and a small royalty has been paid to the artist. But has the correct royalty been paid? No one knows. And now this…if record companies are being given a fee for each iPod sold then in my opinion they have no right to sue people for downloading illegally and they need to pay a percentage to the artists.

    Just my opinion.

    OM

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  7. If Apple gave an amount to the RIAA rather than specifically Universal – there by giving me carte blanche to download all the music I want without paying for it when I download it then I’d be all for a small payment.

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  8. Let’s see…you know what else is used to “illegally share music that may have also been acquired illegally”? Personal computers, internet access, compact discs, flash drives, electricity, etc. Why don’t they just go ahead and ask for royalties from all of those too?

    I have to admit I saw this coming when Microsoft agreed to pay Universal.

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  9. This almost sounds like a Cold War of MP3 players. With MS starting by paying ransom, it’s going to force all other manufacturers to pay as well. There are a lot of companies that won’t be able to afford it and will possibly fall into bankruptcy due to this. MS created a bad precedent that will give other Labels a chance to chime in as well.

    The thought of legal P2P downloads is preposterous. There is absolutely no way that the labels are going to allow P2P music sharing. It’s why they are forcing MS to pay the tax in the first place. They have this incorrect idea in their heads that music sales are down because people are stealing the music instead of the music being crap. Music is being “manufactured” instead of created.

    I really hope Steve Jobs tells the Labels where they can stick their piracy tax.

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  10. Michael,
    Actually in Europe it’s already the case. Even on the external hard drives there is a tax that goes (officially) to the organism for the respect of the copyrights.

    For me, definitely, this is not a deal that have to be made from one company (universal) to another company (Microsoft or Apple). This should be a law made for everyone.

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