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?

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