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Apple Threatens To Shut Down iTunes Store (Really) If Forced To Pay Higher Rates

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imageWhile we’re on the subject of music royalty rates… Apple (NSDQ: AAPL) says it might pull the plug on its uber-popular iTunes store if the Copyright Royalty Board jacks up the amount it owes per track that it sells. Yep, the company made the “don’t come near me or I’ll jump” threat in a statement submitted to the board last year, now being reported by Fortune’s Devin Leonard. He notes that the CRB is set to resolve a price dispute between online music retailers and the National Music Publishers Association, which wants to collect 15 cents per track, up from 9 cents, currently. Apple, represented by the Digital Media Association, would actually like the rate lowered to 4.6 cents or 6 percent of “applicable revenue.”

It’s understandable that Apple would want to fight this — based on analyst Gene Muster’s estimated 2.5 billion tracks sold in the coming year, the hike would cost it $144 million. But the notion that it would willingly give up its dominant position in online music retailing, as well as a key ingredient in what makes the iPod/iPhone franchise so successful, is basically implausible. Perhaps iTunes could go on, sans-music, but then its name would be absurd. If the worse came to worst, and the royalty rate were hiked and Apple could not stomach the $144 million hit to profit, then the company could always raise the cost of music. Apple argues that this would lower music sales — thus obviating any gain to the publisher — but for Apple, it would at least preserve the complementary store and device, which has brought the company such incredible fortune.

For more skepticism that Apple would really shut down iTunes, Greg Sandoval at CNET has a sharp take: “I have to question why it has taken 18 months for Cue’s comments to come to light, and why are they popping up just two days before the board is supposed to rule on a possible rate hike? Maybe it’s coincidence. Or maybe Apple is firing a public-relations shot across the bow of the music industry and CRB. When it comes down mass appeal, Apple holds all the cards. If word gets out that music publishers is trying to stick it to consumers, and Apple is fighting to keep prices down on their behalf, well, there’s liable to be public backlash against the labels. If this thing follows the normal course, there would be calls for boycotts, protests, and so on.”

4 Responses to “Apple Threatens To Shut Down iTunes Store (Really) If Forced To Pay Higher Rates”

  1. That and apple makes only about 8 cents an album and the music maker wants to increase the price making apple to take a loss. I would pull the entire thing anyways.

    After 2 months of lost revenue the labels will bring it back because pirates will bring a resurrected WinMX again. And yes Trent Reznor will cry again.

    Amazon is .88 cents…hello? Who cares and its MP3 format

  2. Steve Coppock

    Nice to see that Apple is doing it's part to give more justification to those that pirate music (which is probably about 95% of the public at some time in their online lives). So out of the 9.99 they are overcharging for an album, only an average of 1.08 for a 12 track album is actually going to the artists?

    I guess those manufacturing costs being so high… Oh, that's right….