Apple threatens to shut down iTunes over royalty hike

By on October 1, 2008, 1:39 PM
A new chapter in the face-off between Apple and the music industry has begun. The Copyright Royalty Board is expected to rule Thursday on a request from music publishers to increase royalty rates on songs bought from online music stores such as iTunes by 66% percent, from 9 cents a track to 15 cents. Such a rise would have to be paid by either Apple or the consumer.

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.

User Comments: 11

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MaverickScot said:
I believe that the record companies again are being greedy and it's the poor consumer that doesn't pirate MP3's that gets hit yet again. All this situation will do is turn more honest people towards illegal downloads because they can't use the istore or wont pay 66% increase. Either way it's a lose situation for the record companies.
Rick said:
Prices of goods and services are supposed to DECREASE over time, not INCREASE, in a favorable market. And the market certainly is favorable. Increased sales, a broader customer base than ever and cheaper music distribution are perfect variables in a formula for lower prices when supply is plentiful (and "imaginary property" is certainly that). Why hasn't this happened? I'll leave the speculation in your hands. :)
windmill007 said:
I don't see why the record labels need to get any of the money. It should go to the artist. If we cut out this highly over paid middle man we can have cheaper downloads. They should be under .25 cents and have great quality and no DRM. I would actually pay for that. That would be easier and convenient and help stop out piracy. What we need is a store like that. Artist that sell there music directly to the public at a reasonable price.
DarkCobra said:
Well for Apple to threaten to hold it's breath like a child unless it gets what it wants is silly. What does shutting the whole thing down do other than deny end-users the music at ANY price. Yes, by all mean fight the increase but if you lose you either absorb the loss or pass it on to the end-user. That is how the adult world works and Apple would do well to lose its arrogant sense of entitlement to a different set of market rules just because they have a few hot products.To the individual who said the price of goods and services should decrease in a favorable market . . . can you provide examples of where in our lives that is true? Nothing in my life is "decreasing" with use at all. You may be right, but I would love to know where.
windmill007 said:
I know computer parts this is true because of AMD. Cell plans not so much. I started with a $21.20 (tax included) your lucky to find anything under $40. The internet maybe..Because of DSL. Without DSL I bet we would be paying over $100 a month due to cable. So competition helps. But unfortunately apple is a monopoly right now in that market so they can use that to there advantage...Although they do so like a cry baby.
anguis said:
what are you complaining about apple here for? their strategy to fight the raise is actually quite intelligent. rather than negotiate, they will use their power to shut down itunes at will to get what they want (and really, it benefits the consumer too, no raised prices, so why should you complain?). the music industry does NOT want itunes shut down, so they will back off. simple as that.
dark.reaper.hx said:
Thats just retarded since Apple is helping out the Copyright Royalty Board as well as the darn Record Companies. I mean there are at a lose-lose situation. 1.Apple shutsdown 70% of sales will go down2.Apple stays people will not pay the increase3.Apple stays and Apple pays for those funds they will go into a Financial Crisis4.Record companies will have to deal with more piracy since people that are paying for the songs will now steal music (pirate). Since they are doing a good thing in buying music for .99 cents and they get screwed over by the retarded Copyright Royalty Board.So i just suggest iTunes should just shutdown so the Copyright Royalty Board can regret there move
Velystord said:
all i can say is let them im still wondering why some one with half a brain would spend $300 on an mp3 player when i can get something with more features and same quality for $50 besides over pricing theres more than 1 mp3 store out there like real or something
9Nails said:
I think dark.reaper.hx is right. Price goes up, piracy goes up. The two are related.Consumers didn't want to pay $15 per album. So they pirated the few tracks that they liked. Most people didn't pirate the entire album, just the 3 songs that they may have liked. Apple made it fair so that you could buy the 3 good songs, recording industry still gets money and everyone is happy. It can't even be argued that consumers like the $0.99 price per track either. I personally think it's rather steep for an inferior digital quality when compared to the CD version. Certainly, Apple's realized success with digital music sales and cornered a large market share. But if the price was right the share would be MUCH larger.So, go right ahead Copyright Royalty Board, demand more money! That $0.15 added tax might still earn you a profit if 61% of the customers stay with iTunes. But if 41% of them turn to piracy you're worse off than when you started.
TamTam1000 said:
I think that to charge people more money, they will go and do illegally, but I don't see why Apple should pay more, and if they did this, maybe they should make profits on their ipods then to make up for the lose, i love my ipod, and I love itunes.
Star*Dagger said:
I am completely and utterly stunned that the corporate powers that be have brainwashed people so completely that they buy what is freely available.
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