Tuesday, September 30,2008 @ 5:10pm
Apple takes hard line on online music royalties
Apple is taking a hard stance on proposed increases to online music royalties, one which could threaten the very future of the iTunes Store, Fortune reports. The Copyright Royalty Board -- a panel of three judges which oversees licenses issued under federal copyright -- is scheduled to make a ruling on Thursday, on the subject of a proposal by the National Music Publishers' Association. Following last year's end of a 1997 agreement covering music royalties, the NMPA proposed an increase on the amount collected from each individual track sold online, from 9 to 15 cents.
Since 2007 however, Apple's iTunes VP, Eddy Cue, has suggested that the company would prefer to shut down music sales completely rather than raise prices or allow royalties to affect profits. If royalties were to increase, Cue writes in one statement, "the result would be to significantly increase the likelihood of the store operating at a financial loss -- which is no alternative at all."
"Apple has repeatedly made it clear that it is in this business to make money," the statement goes on, "and most likely would not continue to operate [iTunes music sales] if it were no longer possible to do so profitably."
Cue notes that Apple makes relatively little profit from music sales, due to low prices meant to encourage a young industry. Some 70 cents per dollar are used to pay record companies, and it is from this amount that the 9 cents are delivered to music publishers. It is thought that the record companies may refuse to absorb royalties themselves.
The Digital Media Association, a group representing online music vendors such as Apple, has in fact pushed for lower publisher royalties, as little as 4.8 cents or 6 percent of applicable revenue. The NMPA defends its position, and claims that the DMA's counter-proposals have already been defeated. "Apple may want to sell songs cheaply to sell iPods," says NMPA president David Israelite. "We don't make a penny on the sale of an iPod."