Apple threatens to shutter iTunes over proposed royalty hikes
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."
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."
Comments
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....
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.
Knee-jerk reactions in 3....2....1....
I missed you, wilco.
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.....
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!
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)
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?
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.
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.
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
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.
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.
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.
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.
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.
iTMS
Especially if competitors go above the $.99 mark.