Apple, of course, doesn’t like the sound of this and has threatened to shut down the iTunes music store. The company argues that an increase in the royalty rate would force them to either eat the loss or raise prices, neither of which are attractive options for them. Absorbing the higher royalty costs would eat into their margins (and, according to Apple, result in the store operating at a financial loss), but passing the raise to consumers could cause a drop in sales.
Apple charges 99 cents per track, of which 70 cents go to the record company which then passes on the royalties. But with record company revenues falling by the year, they want Apple to cover the increased royalties rather than absorb the extra cost themselves.
Apple doesn’t seem willing to make a compromise here, so we’ll just have to wait and see where this goes. In any case, it is highly unlikely that Apple would actually shut down the country's largest music store, and the music industry isn't going to risk losing its largest distributor either.
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