A Dangerous Precedent: iPod Royalties


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?


Dave M.

“MS knows it can do this financially and bets Apple won’t be able to withstand it.”

Really, you think that Apple wouldn’t be able to handle a $1 fee to the record labels per iPod sold? Surely you don’t think that Apple’s profit on each iPod sold is more than a dollar or two.

Apple can easily handle this unwarranted surcharge. I just think they will fight kicking and screaming to not pay it. It’s basically says that everyone who owns an iPod is a thief.

It also sends the message that it’s OK to pirate music since we are now paying a surcharge for music theft. It’s a precedent that Apple wouldn’t want to set, and I am really surprised that the record labels want to set such a precedent.


Microsoft will always find a pernicious way to bring down its competitors. Take the last case to allow media companies to get royalties for every Zune sold. MS knows it can do this financially and bets Apple won’t be able to withstand it.

If only MS could innovate instead of bringing down the industry with dirty tricks. I’m no idealists but low tactics are bringing everyone down. These guys are awful.

Yasser Dahab

While it may be a bit far-fetched to assume that Microsoft did Zune simply to “poison the well” for Apple and Sony, I think it’s safe to say that they knew full well what precedent they were setting with the Universal deal. I think Microsoft is making an honest attempt to strengthen Xbox as a media-center, with Zune just an added bit of flair.

This is why I feel that someone needs to get the Library of Congress on top of this one and adhere to the AHRA (as defunct as it may be).

Dave M.

Bruno Dexter, Hence my comparing what MS did to a Cold War of MP3 players. They have the most money of all the other companies, probably combined, so they put out a crappy player, that all the record labels get a piece of the pie from, and then those labels will start knocking on all the other MP3 doors. Before long, Creative, SanDisk, etc… will fall into bankruptcy due to the inability to pay such “royalties”. All that will be left is MS and possibly Apple. Then possibly Apple itself.

At least that’s what it looks like to me.


MSFT has such little chance of succeeding with ZUNE that I beleive they knowingly poisoned the well for Apple with this $1 kickback to the labels.
With one poorly conceived move, MSFT has managed to muck up the entire legal download biz.
Way to go.

Interested Consumer

I read the Reuters article and then I sent off the following letter to Universal Music, to their “feedback” e-mail and to their “Royalty Department”. I copied the Reuters article and then commented — below …


Now, this is ridiculous, because it presumes that people are going to pirate music “at large” and that (on the average) most consumers have pirated music. While there may be a certain segment that has that kind of “pirated music” on their computer, CD disks and so on — they mostly end up “collecting” it and gathering dust, and nothing more. It has done *nothing* because it’s not any more than a “collector’s item” — which is looked at and sits there and would have *never been purchased* in the first place. In the end, most of it will end up broken and in the trash — to never have done *anything* to the music market.

That being said, the majority of the public is not in that category. While even *that segment* of the “public at large” may have a copy or two of some neighbor or relatives or friends disc — it would be something like a CD, DVD or even a taped VHS TV show that someone would pass around. Mostly it would get listened to (or watched) a time or two and then forgotten. Even with that (with the public at large) anything that they would have (which would be extremely minimal) would *never have been purchased* if there was a full retail price involved. With many of these people, the product would have to be 20-25% of the original price, before they would ever consider it.

With all of the above being said — I would take the above news article to mean that Universal Music (and/or other major music companies) would want to get a “bulk royalty” (a “volume” type of royalty, across-the-board) for what they figure Apple iPods will have on them (across the spectrum of iPods that will be out there in the market).

*If that is the case* — and — that becomes the case with iPods, in which Apple will include the price of that kind of “blanket and bulk royalty” — THEN — I will figure that I have a royalty already figured in there, in my iPod for songs. That would mean that I *am entitled* to having those kinds of songs on the iPod, since Apple will “presumably” pay for those (*meaning* — “I” will pay for it). That’s what I would *then* be encouraging everyone else to *understand* — *since* — they would also have a “blanket and bulk royalty” included in their iPods.

If Apple were to pay (just for example and round numbers) a blanket royalty of $50 (which would probably be way too much anyway) — then for a “bulk rate” on royalty numbers — I would say that would be worth about 5 to 10 cents per song (for music). That should entitle *everyone* to about 750 to 1,000 free songs of their choice (considering it’s a “bulk rate”).

I guess if I am going to be forced to pay for those songs “up front” and in “bulk quantities” then I will be fully entitled to those 1,000 songs. For me it should be around 1,000 songs because most of my songs would be about 40 years old and less desirable than those of the last year or so (since music companies also seem intent on “variable pricing” with individual songs and albums for online downloading through iTunes).

I would hope that some of you in this company get *more sense* than what I read in the papers. BUT, if not — and this sort of thing does go through — then I’ll be looking around for my 1,000 free songs somewhere. And, so will a lot of other people *once* they *understand* that they are paying for it already, before they even get the first song (and even if they don’t ever get any songs online).

The *market has changed* and the music industry *must change* too (instead of living in a past age). The online downloads are a completely “different animal” and the costs for distribution are next to nothing (with such a store as Apple iTunes (compared to the physical distribution system) and there needs to be a “wholesale movement” over to this new sort of format.

AND, also, they companies *must* quit trying to force consumers to buy a new “copy” (license or whatever you want to call it) for every “format” that they come across. The music should *move* freely between different electronic appliances with the *one purchase* that the consumer has made. To continually restrict this and try to force a “new price” on *another format* for the same song or album already purchased once before will only cause more people to *totally disregard* the big music companies because of their outdated policies.

For those who are knowledgeable, these kinds of restrictions (electronically and with “formats”) are not a problem. For those with whom it is a problem, you only restrict their purchases, so they don’t really purchase as much as they would and they simply get frustrated. With a large majority of the people who may be involved with this issue as normal consumers — you simply alienate them (as you already has a large segment).

You don’t do yourselves any favors this way. You’ve got a long ways to go to ever recover lost ground in that regard and you aren’t going to recover and go back to the “halcyon days” of the historic music industry. The “worst nightmare” you will see — if you persist in these things — is the *direct interaction* of the artists to the public, through their own “stores” and bypassing all labels, except for a very few “dinosaur types” who may be the *last* to ever engage in that “former” marketing format (of the last century) ever again.

You better work fast to *not* try and “secure the past” — but rather — work hard to secure the “new future” of music in which y’all (the big music companies) will *still* have a part to play and not become the dinosaurs of the past century.


End of rant to Universal Music


It is utterly absurd for any hardware manufacturer to subsidize content. It is a symbiotic relationship, as content needs hardware as hardware needs content. Neither has value without the other, thus it’s a wash. Big media today is displaying a remarkable level of greed. Come to think of it, content and hardware have no value without public support. Isn’t it ironic how few are concerned with that aspect of the equation. Ultimately big media and goverment will drive culture into the ground if they stay on this course — or should I say underground?


I completely agree with the points made by Jamie and others above – it starts with Universal Music and US$1.00 on a Zune, it ends with what? Every RIAA member asking for a similar cut of sales from MP3 players, hard drives, flash memory, ISP subscriptions, anything which can store a single byte of data?

Back when peer-to-peer was at its peak and the labels were desperate, Apple gave the industry exactly what they wanted – a legitimate and enormously successful form of DRM-protected, electronic music distribution. What the labels realised later was that Apple was’t doing this out of the kindness of its heart, it was leveraging iTunes music sales to help build a closed ecosystem designed to sell more iPods. And now the record label cartels want their cut of this.

But I honestly believe that Apple has built its position so cleverly that it can’t be forced into these concessions in the way that Microsoft was. The huge market share of iTunes and the lack of any organised competition means that the labels now depend on iTunes as a pillar of legimate sales that might otherwise be lost to casual P2P downloading. Steve Jobs has resisted attempts to force Apple to restructure pricing on iTMS, and he will resist any attempt by the cartels to extort money from iPod sales.

William H.

Almost all the music on my iPod came from legally purchased CDs. The rest came from iTMS and podcasts.

The record companies can go to hell. Most of their wares are total crap, which is why I buy about 1 cd a year since I built a collection in college 15 years ago. I think their real problem is they cannot get people to buy the same music over and over again anymore. Those of us old enough to buy records bought records, then we bought the same stuff again on tapes, then we bought CDs. Now we can convert the Cds to MP3, we don’t need to buy the same Beatles, Bob Marley tunes for the 2nd, 3rd or 4th time. Screw them.


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.

Dave M.

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.

Michael Napier

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.


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.


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.


Yasser Dahab

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.


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.

Marco Lopes

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.

Richard Neal

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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