Apple threatens to shutter iTunes over proposed royalty hikes

Posted:
in iPod + iTunes + AppleTV edited January 2014
Apple has threatened to close down its iTunes Store should regulators approve a royalty hike that would grant artists a 66 percent increase in commission for each song sold through online download services.



According to Fortune, the Copyright Royalty Board (CRB) in Washington, D.C. is expected to rule Thursday on a proposal from the National Music Publishers' Association to raise the rates paid to its members on songs purchased from digital services like iTunes from 9 cents to 15 cents a track.



The three-judge panel oversees statutory licenses granted under federal copyright law, which includes music sales, according to the report. The board's previous ruling covering physical CD sales was made in 1997 and expired last year, making the impending decision the first to affect digital music sales. It will reportedly span the next five years.



In a statement submitted to the CRB last year regarding the matter, Apple iTunes chief Eddy Cue suggested that company might decide to shutter iTunes rather than raise prices above 99 cents or eat the cost of the fee hikes.



"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," Cue wrote. "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."



Apple, which has leveraged the iTunes Store to help sell over 160 million iPods, typically collects 99 cents each time a customer downloads a song, of which 70 cents is turned over to the record labels. The record labels, in turn, then typically pay 9.1 cents to the music artists who own the copyrights to the songs. Most of Apple's remaining 29 cents is used for maintenance rather than profit.



Like Apple, Fortune reports that the record labels "are in no mood to pay the proposed royalty increase" out of their own pockets; CD sales have dropped by 20 percent in the past year and so put pressure on labels to recover this through downloads. Online sales surged 46 percent over the same period and have been poised to overtake physical albums as iTunes has pushed past Wal-Mart to become the US' largest individual music retailer.



They've instead asked CRB to do away with fixed royalties in favor of an 8 percent commission to artists, which would translate to about 5.6 cents on the wholesale cost of each 99 cent track. The Digital Media Association, which represents Apple and other digital retailers, is seeking an even lower rate of 6 percent, or 4.8 cents per track, according to the report.



Musicians charge that these attempts by Apple and the DMA to hold or even reduce ultimate royalty rates are effectively taking unfair advantage of their positions to push electronics. By keeping iTunes music below the dollar mark, Apple knows it can use its online store as an incentive to device buyers, according to NMPA president David Israelite.



"Apple may want to sell songs cheaply to sell iPods," he notes, "[but] we don't make a penny on the sale of an iPod."
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Comments

  • Reply 1 of 80
    wilcowilco Posts: 985member
    Quote:
    Originally Posted by AppleInsider View Post


    Apple has threatened to close down its iTunes Store should regulators approve a royalty hike that would grant artists a 66 percent increase in commission for each song sold through online download services...



    Knee-jerk reactions in 3....2....1....
  • Reply 2 of 80
    mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by AppleInsider View Post


    Cue wrote. "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."



    Right! With millions of new iPhones out there, not likely. Sounds like so much posturing. The cost will just get buried in there somewhere if there is a price hike.
  • Reply 3 of 80
    buckbuck Posts: 293member
    Quote:
    Originally Posted by wilco View Post


    Knee-jerk reactions in 3....2....1....



    I missed you, wilco.
  • Reply 4 of 80
    jeffdmjeffdm Posts: 12,946member
    Exactly how many different royalties is Apple directly paying to sell a track?
  • Reply 5 of 80
    BS... the iTunes store is the core of Apple's commercial strategy.
  • Reply 6 of 80
    Apple's obsession with 99¢, as opposed to, say $1.05, is silly.



    Heck, make it $1.09, blame in on the government, and make an extra 4¢ per tune, Apple! I need some sops as a shareholder right about now.....
  • Reply 7 of 80
    I find all of this to be rather hilarious. In an age were record companies are becoming less and less relevant, they ask for more. Haha. They're like squirrels hoarding nuts for the winter. I'm not saying that record companies are going away, just that their whole business model is getting rearranged. (Look at Radiohead, NIN, Moby and the momentum of Myspace) I would like to see Apple play hardball with these losers. Maybe cancel iTMS, and release iTunes 8.1 with increased compatibility with Limewire. And then throw a marketing campeign behind it for good measure. I'm not saying Apple will do this or even that they should. I would just like to see the impact it has on record sales.
  • Reply 8 of 80
    How about Apple bypassing the record labels, working directly with artists, and paying that 70 cents directly to the artist? That's a 30/70 split on the 99 cents. It seems that the artist is always the loser in these deals. Today they make 9 cents. Record labels want to lower it to 6 cents. Apple wants to lower it even more. That is appalling. A 30/70 split between Apple and the artist is a much better solution, and as good a deal as we photographers get with stock photo houses like Acclaim, Alamy, etc.
  • Reply 9 of 80
    Why can't they all be more flexible.

    Sales below 1,000 songs get 15%

    Sales below 100,000 songs get 10%

    Sales below 1,000,000 songs get 5%

    Have some kind of a scale at least so everyone benefits.Can't they all just grow up!
  • Reply 10 of 80
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by cprail View Post


    BS... the iTunes store is the core of Apple's commercial strategy.



    The iTunes Store started well after iTunes and the iPod had become popular and the iPod/iTunes model seems entrenched enough to not need to operate it's own store to be successful in selling Macs, iPods and iPhones.



    But if they did stop their own music store, that doesn't mean that there wouldn't be any music store within iTunes. Apple could get with Amazon, eMusic, et al. to offer a music store portal within the iTunes application. This would instantly and dramatically increase the popularity of any music store portal that Apple could easily ask for their own per track royalties, This wouldn't have to be much as their iTS server and bandwidth costs for music would now be nil. To keep the confusion down, since they would still be offering movies and TV Shows, they could offer separate store listings in the left-hand column of iTunes.



    (Note: I don't think Apple will forego their music store)
  • Reply 11 of 80
    Quote:
    Originally Posted by wprowe View Post


    How about Apple bypassing the record labels, working directly with artists, and paying that 70 cents directly to the artist? That's a 30/70 split on the 99 cents. It seems that the artist is always the loser in these deals. Today they make 9 cents. Record labels want to lower it to 6 cents. Apple wants to lower it even more. That is appalling. A 30/70 split between Apple and the artist is a much better solution, and as good a deal as we photographers get with stock photo houses like Acclaim, Alamy, etc.



    I am confused: The article talks about "National Music Publishers' Association" wanting "to raise the rates paid to its members on songs...."



    Where do the record companies come into this? Aren't we talking about the artists?
  • Reply 12 of 80
    Quote:
    Originally Posted by HyteProsector View Post


    I find all of this to be rather hilarious. In an age were record companies are becoming less and less relevant, they ask for more. Haha. They're like squirrels hoarding nuts for the winter.



    *sigh* No, the songwriters are asking for more, and a panel of judges is expected to rule in favour. The record companies are asking to pay them less ?*5.6 cents vs. 9.1 cents, or a 40% cut.



    Quote:
    Originally Posted by wprowe View Post


    How about Apple bypassing the record labels, working directly with artists, and paying that 70 cents directly to the artist?



    Artists with record deals are contractually bound to let the record company manage digital sales. Very few artists have the clout to negotiate away that clause.



    Small independent artists without major-label record deals would probably be interested, but Apple doesn?t seem to be; individual negotiations are probably seen as more trouble than they?re worth.
  • Reply 13 of 80
    kasperkasper Posts: 941member, administrator
    Quote:
    Originally Posted by anantksundaram View Post


    I am confused: The article talks about "National Music Publishers' Association" wanting "to raise the rates paid to its members on songs...."



    Where do the record companies come into this? Aren't we talking about the artists?



    The artists are the members of the NMPA...



    Best,



    K
  • Reply 13 of 80
    Quote:
    Originally Posted by wprowe View Post


    How about Apple bypassing the record labels, working directly with artists, and paying that 70 cents directly to the artist? That's a 30/70 split on the 99 cents. It seems that the artist is always the loser in these deals. Today they make 9 cents. Record labels want to lower it to 6 cents. Apple wants to lower it even more. That is appalling. A 30/70 split between Apple and the artist is a much better solution, and as good a deal as we photographers get with stock photo houses like Acclaim, Alamy, etc.





    The artist would need to bypass the record label first and whilst not impossible these days, is pretty unfeasable considering the music industry is notorious for shafting starstruck artists left right and centre.
  • Reply 15 of 80
    Quote:
    Originally Posted by AppleInsider View Post


    Apple...collects 99 cents each time a customer downloads a song, of which 70 cents is turned over to the record labels. The record labels, in turn, then typically pay 9.1 cents to the music artists...



    Like Apple, Fortune reports that the record labels "are in no mood to pay the proposed royalty increase" out of their own pockets.



    So Apple gets 29 cents to host albums and take care of transactions and run the iTunes store, sounds fair.



    Record companies collect 70 cents for... uhmm... errr... i dunno... but pays artists for producing the music 9.1 cents per sale!!! Sounds like a total rip off to me, artists should cut the middle man, follow in the footsteps of Prince. But I think artists are trapped in a contract and think they have too much to lose if they complain.
  • Reply 16 of 80
    Quote:
    Originally Posted by HyteProsector View Post


    I find all of this to be rather hilarious. In an age were record companies are becoming less and less relevant, they ask for more. Haha. They're like squirrels hoarding nuts for the winter.



    You need to read that article again: it's the National Music Publishers' Association who are asking for the increase, not the Record Labels. Frankly I don't see how Apple are even involved in this. If it's the Record Label's responsibility to pay the artists, then surely that's a contract between them. Why should Apple get dragged into it?



    Whatever happens, Apple can't afford to close iTMS. It's now an institution, and is the grease on the wheels of the iPod & iPhone sales. They'd never regain the same status if iTMS went away. And turning it off will be commercial suicide for their iPod & iPhone business.



    What's the betting that MicroSoft would make Zune hay if Apple dropped the ball now.
  • Reply 17 of 80
    Quote:
    Originally Posted by anantksundaram View Post


    I am confused: The article talks about "National Music Publishers' Association" wanting "to raise the rates paid to its members on songs...."



    Where do the record companies come into this? Aren't we talking about the artists?



    apple pays the record companies, not the artists. if the artists demand more from the record company, then the record company demands more of apple, then apple demands more of us.



    keep following this chain and we end up with massive inflation. STOP THE NMPA OR WE'LL HAVE A RECESSION. (*ducks*)



    nevertheless, that's how the record companies come into it.
  • Reply 18 of 80
    phizzphizz Posts: 142member
    What about a little thing called inflation? Prices would inevitably have to go over 99c anyway. Were they gonna shut down then?
  • Reply 19 of 80
    Quote:
    Originally Posted by neondiet View Post


    iTMS



    We're now too lazy to type iTunes Music Store? where will it end?
  • Reply 20 of 80
    Eh... they'll run it at a loss to support their other products if that happens.



    Especially if competitors go above the $.99 mark.
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