Apple to music industry - It's our way, or iTunes gets the bullet!

Apple to music industry - It's our way, or iTunes gets the bullet!

Summary: The National Music Publishers' Association wants to see an increase in the royalty rates paid to its members for songs purchased through online music stores. Apple doesn't like the sound of that. Could Apple really shut down iTunes?

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TOPICS: Apple, Hardware, Mobility
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The National Music Publishers' Association wants to see an increase in the royalty rates paid to its members for songs purchased through online music stores (the association wants the rates raised from 9 cents to 15 cents a track). Apple doesn't like the sound of this and is willing to shut down iTunes rather than raise the 99 cents a song price or absorb the higher royalty costs. Is this all just hot air, or could Apple really shut down iTunes?

Here's what Apple said to the Copyright Royalty Board (PDF, page 4):

If iTS were forced simply to absorb any increase in mechanical 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. Apple has repeatedly made clear that it is in this business to make money, and most likely would not continue to operate iTS if it were no longer possible to do so profitably.

Apple doesn't seem willing to make a compromise there - it's Apple's way or iTunes gets the bullet. But how likely is it that Apple would pull the plug on iTunes?

Note: Let's ignore for now the side argument of the dangers of letting one outlet grab too much of the market share and be allowed to dominate the discussion ...

How likely? Highly unlikely. iTunes accounts for some 85% of the digital music sold, so that's not something that Apple is going to give up without a fight. Also, the tie between iTunes and the iPod is strong, and there's little doubt that one appeal of the iPod is how easy it is to buy music for it through iTunes (Apple would also be handing all those customers over to the likes of Amazon). On top of that, Apple is unlikely to want to bring upon itself the wrath of disgruntled customers (imagine the screams if Apple pulled the plug on the DRM servers ...). On the other side, you have the music industry. No one here will want to see 85% of digital sales evaporate.

Number crunching: Let's put the numbers into perspective. Out of ever dollar collected by Apple, 70 cents goes to the record company, out of which 9 cents goes to the copyright holder.

Put simply, Apple's statement is full of puff, and a deal is certain, and it's likely that royalties won't increase. In fact, I'd go further to suggest that is this a PR trick by Apple to make the music industry seem grabby (while making Apple seem like the protector of the consumer).

Thoughts?

Topics: Apple, Hardware, Mobility

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178 comments
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  • Music Industry to Apple

    LOL!
    Sleeper Service
    • You know...

      ... NBC said that too.

      Where are they now?
      Vulpinemac
      • On iTunes...

        ...but what relevancy has this to with the topic in hand?

        Let me ask you a question. If Apple close iTunes now that there are a number of alternatives available who do you think suffers the most - the record companies or Apple?

        Hmm?
        Sleeper Service
        • "...who do you think suffers the most...?"

          The record companies. Closing down the iTMS will shut
          down 75% of their income while having little effect on
          Apple's bottom line. Just because they shut down the the
          music doesn't mean they have to shut down everything
          else.
          Vulpinemac
          • 75% of their income?

            Not a chance, more like 20%

            http://arstechnica.com/news.ars/post/20080402-apple-passes-wal-mart-now-1-music-retailer-in-us.html"

            Closing iTunes would seriously impact Apple, and the rest of the retailers would see instant sales increases.
            rtk
          • Then sell your Apple stock...

            ... to me. Because I don't believe for an instant that Apple
            will be as seriously impacted as you seem to believe.
            Vulpinemac
          • Nonsense.

            Everyone would just switch to Amazon or the other services that are iTunes software compatible.

            Suggesting that people will simply stop buying music because one distribution channel stops operating is just silly.
            Sleeper Service
          • A pity...

            ... you weren't on the committee that acceded to Apple's
            response.
            Vulpinemac
    • Whoa!

      Did I read that right? The labels get $0.70 of the $0.99 Apple
      collects, and they only give the copyright holder $0.09? Apple
      has all the iTunes infrastructure expense as well as billing
      costs for all those small transactions--what is the
      incremental cost for the labels? Right, nothing!

      The artists should be demanding a larger cut of the labels'
      share, no two ways about it.
      frabjous
      • Where are you getting your numbers from?

        I see a 9, a 15, and a 99. I don't see any 70's anywhere...
        T1Oracle
        • From the article, I beleive 6th paragraph

          [i]Number crunching: Let?s put the numbers into perspective. Out of ever dollar collected by Apple, [u]70 cents goes to the record company[/u], out of which 9 cents goes to the copyright holder.[/i]

          Dan
          DanLM
  • RE: Apple to music industry - It's our way, or iTunes gets the bullet!

    One can only home apple shuts iTunes down
    jfp
  • RE: Apple to music industry - It's our way, or iTunes gets the bullet!

    Very likely. If Apple shuts down iTunes store the recording industry won't get paid. Apple has the upper hand here and can do it if need be. There was a time when people listened to music before the iTunes store.
    Loverock Davidson
  • disagree strongly

    "one appeal of the iPod is how easy it is to buy music for it through iTunes "

    that is excatly the other way round. it is impossible to buy music on itunes store for any device other than the ipod. in this equation ipods did and had to come first.

    ipod sold because is was cool and could play mp3 that were downloaded by the dozen on file sharing systems.

    ipods started shipping 2001. itunes music store was available for mac users in 2003 and to pc users in 2007. first billion songs sold was in 2006. by that time nearly 40 millions ipods were sold. that is 25 song sold per ipod ! with such figures you cannot claim that ipod purchase was motivated by the ability to buy music on the itunes music store.

    Current figures ( 5 billions song sold in june against 160 millions ipods ) gives an average of 30 song purchased by ipod. two albums . and that is not a per year purchase figure, but an all time !

    apple must have made around 16 billion margin from the start on ipods and around 2 billions margins on music. and ipods generate additional revenues on accessories.

    Apple has the upper hand on this. It broke the major distribution monopoly and captured associated revenues, btu doesn't need it to survive. majors strive to rebuild there business model and need apple. at the same time playing the populist role of defending the custumers againts the vilains, apple counter the negative effect of accusation of combined sales that emerge in europe and will eald to apple beeing condemned to change its business model on music store.
    s_souche
    • Um...

      Quote:"that is excatly the other way round. it is impossible to buy music on itunes store for any device other than the ipod. in this equation ipods did and had to come first."

      Response: Anyone worth their salt is aware that iTunes was created FOR the iPod. Why are you surprised by this?

      Quote: "itunes music store was available for mac users in 2003 and to pc users in 2007."

      Response: That's really funny, cause when I got my first iPod in 2004, i did not have a mac, and i was using iTunes to download music...

      Quote: "with such figures you cannot claim that ipod purchase was motivated by the ability to buy music on the itunes music store."

      Response: No, it wasn't, but that is what helped the iPod gain its massive market share that it enjoys today.

      Any any instance, it seems that Apple is reaping not so much in order to maintain the service it provides.

      I think with 70 cents going to the record companies, that teh RECORD COMPANIES should be the ones fronting this extra six cents.
      dntbstpd1
      • oops

        miwed up numbers itunes for mac 2001 and itunes for pc 2003, not 2003/2007.

        that doesn't change the bottom line, which is that itunes did not generate the ipod succed nor did it have a direct impact on it ( by which I mean no significant number of buying decision was made based on the existance of itunes music store ) as the figures show.

        agreed that any increase of the publishers revenue would have to be covered pro rata the existing shares of revenues. anyone apple, based on its historic position does not want to increase price, nor to diminish its share of revenue. As itunes, as i pointed out, is less important to their business model than it is to record compagnies, clearly has a upper hand.
        s_souche
        • Then if that is true, why has Apple

          not offered a second choice in iTunes, that being the ability to purchase the music in a second format?

          Sales wise it would make sense as you would have all the people with iPods shopping there [b]PLUS[/b] people with Zens, Zunes, ect.

          The only reason that makes sense is that in doing that, you would no longer need to purchase an iPod to access their vast music library.
          GuidingLight
          • That's just Apple . . .

            trying to route more money to themselves (and I don't blame them). It's easier to access the music store that's included in the software that came with your player. No muss, no fuss, as it were.

            But don't forget that on-line sales still do not represent the majority of music sales today. If it did, then places like Target, Wal-mart, the record only stores wouldn't exist (look at the Virgin Megastores . . .). The iTunes store is a nice add-on, but not necessary. I've never bought a single song or video from them, but I enjoy my 4 gig mini just the same.

            And that's what Apple is counting on. They can shut off the spigot and not affect their iPod sales at all. This is simply another instance of the RIAA members not giving artists their due. I mean, come on, they get 70 cents, and the actual copyright holder only gets 9 cents?!?!?

            I don't normally care for Apple one way or the other, but I hope they win this one, and the copyright holders go after the Record companies for a bigger piece of the pie.
            JLHenry
          • I agree, I'd still buy an IPOD

            The thing that gets me wanting one is the accessories. The competition just doesn't come close. You could even consider some cars accessories to an IPOD. My brother inlaw bought a BMW just because it had the IPOD connection in it.

            Being able to down DRM music, useless. I'd much rather by the CD and rip my own to put on the IPOD.
            voska1
          • Give me a break

            Either your Brother in Law told you a story to show how "Cool" he is, or he is a Jerk.
            Today you can hook up any MP3 device to any car.
            coachgeorge