Apple May Shut Down iTunes To Protest Proposed Royalty Hike!!!!!!!

by **J The Kidd** Fri Oct 03, 2008 4:23 pm

It doesn't seem like that big a jump — 9 cents to 15 cents — but for
Apple's iTunes, a proposed bump up of the royalty rate it pays for each
song purchased from its store has pushed the leading MP3 seller to
threaten a shutdown in protest.

The shuttering of iTunes could come as early as Thursday (October 2),
when the Copyright Royalty Board in Washington, D.C., is scheduled to
rule on a request from the National Music Publishers' Association to
increase royalty rates paid to its members on songs purchased from
online music stores like iTunes, according to Fortune. Seen another
way, the 6-cent jump represents a 66 percent hike in the royalty rate,
a figure Apple said could force it to raise its ironclad song price of
99 cents, something the company has steadfastly refused to do since
launching five years ago, despite constant pressure from major labels
to do so.

While nobody from Apple has been discussing the pending decision or its
earlier threat to close up shop, the company has been on the record as
adamantly opposing the rate hike. According to Fortune, in a statement
submitted to the board last year, iTunes Vice President Eddy Cue said
Apple might shutter iTunes rather than raise its prices or absorb the
higher royalty costs.

"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's share of the digital music
market continues to hover over the 75 percent mark — and is expected to
top 85 percent this year — but its profit margin on iTunes sales is
thin, and an executive told Fortune that he had no doubt an increase in
prices per track would result in fewer total purchases from the store.
Apple pays around 70 cents per track to the record companies, and those
companies turn over 9 of those cents to the music publishers who
control the copyrights on those songs.

With record sales continuing their downward spiral — industry blog
Coolfer.com reports that September sales were down more than 20 percent
compared to the same period last year — it's unlikely that the labels
would be willing to turn over a bigger portion of their digital sales
to the copyright holders, either.

CNET speculated on Wednesday that a shutdown was unlikely — especially
given that Apple has sold 160 million iPods and over 5 billion songs to
date, and it would be foolish to leave all those iPod owners with
nothing to download.

On Thursday, the three-judge Copyright Royalty Board is slated to
update its 1997 decision that covered the sales of physical music
products such as CDs for the past decade. It will be the board's first
decision on digital sales and will set the royalty rates for the next
five years, Fortune reported. While the record companies and the
association that represents Apple and other online music services are
seeking a reduction in the royalty rate (or the elimination of fixed
royalty rates altogether), with the digital market continuing to grow,
music publishers aren't likely to back down.

"I think we established a case for an increase in the royalties," David
Israelite, president of the National Music Publishers Association, told
Fortune. "Apple may want to sell songs cheaply to sell iPods. We don't
make a penny on the sale of an iPod."

This report is from MTV News.