There’s a top tussle going on today between Apple and the publishers of the music they offer for sale on iTunes.
Here’s what Eliiot Van Buskirk wrote on Wired about it:
“Apple have threatened to close down the iTunes music store if an obscure three-person board appointed by the Librarian of Congress increase the royalties paid to publishers and songwriters by six cents per song.
“The Copyright Royalty Board is scheduled to hand down its decision on these rates by Thursday. As part of their general muscle-flexing of late, music publishers asked the board to increase the royalties paid to publishers and songwriters for the sale of digital downloads from 9 cents to 15 cents per song.
“Apple — which has mightily resisted tampering in any way with its 99 cent price point for tracks — said that if the rate hike goes through and the labels refuse to absorb the entire resulting increase, the iTunes music store will become unprofitable.
And, Apple says, it likes making money.
“‘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,’ wrote Apple iTunes vice president Eddy Cue in a statement filed with the board last year, according to Fortune. ‘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.’
“Out of each 99 cent song, Apple currently pays artists and labels an estimated 65 to 70 cents per song, 9 cents of which they currently pass on to publishers. According to Apple, the 66 percent increase in publishing royalties to 15 cents per song requested by the National Association of Music Publishers (NMPA) is too much for the company to bear.
“Of course, Apple could simply tack the extra six cents onto the price of each song in its store and make up the difference that way. But part of iTunes‘ longstanding allure is that every track costs 99 cents (with the exception of DRM-free tracks in the iTunes Plus previous to October ‘07).
“Steve Jobs is unlikely to raise the standard track price on iTunes to $1.05, although that would probably be just fine with the labels, which have been pressuring Apple to budge on its 99 cents per track policy for years by allowing Amazon to sell DRM-free albums that they insist be wrapped in DRM when iTunes sells them, among other things. Despite this pressure, Jobs has refused to relent, continuing to insist on the 99 cent flat pricing structure. It‘s hard to believe that Apple would close iTunes rather than raise prices, but that‘s exactly what iTunes vice president Cue threatened to do.
“Prospects for the record labels absorbing the entire increase are dim. They‘re not trying to do Apple any favors when it comes to keeping the price of songs at 99 cents, and a 15 cents per song publishing royalty would gobble over 20 percent of their per-song revenue. Apple will almost certainly have to pony up some of any additional fees, meaning that it‘ll either have to raise prices, run the store at a loss or stop selling music altogether. According to Cue‘s statement to the board, Apple prefers the third option.
“Apple and the NMPA had no comment.
“The Copyright Royalty Board is set to announce its ruling on digital publishing royalties for the first time ever by Thursday. Previously, digital downloads had operated under the same rate that governed the sale of physical albums. In addition, the board will set new publishing royalty rates for physical albums and ringtones. The new rates will be in effect for the next five years. The previous rate of nine cents per track has been in effect since ‘96 (updated) — one reason publishers say it‘s high time for an increase.”
Jeff Engle, Technology reporter for NNN News, Silicon Valley adds:
“The National Music Publishers’ Association has asked for the royalty rake increase and has said it believes everyone will benefit because the digital music market is growing.
“’I think we established a case for an increase in the royalties,’ said David Israelite, president of the NMPA. ‘Apple may want to sell songs cheaply to sell iPods. We don’t make a penny on the sale of an iPod.’
“The Recording Industry Association of America said sales of digital songs and albums rose 46% last year to $1.2bn ($652m)
“Apple pays an estimated 70% of digital music revenue to record companies which in turn pass on a percentage to artists. It is that percentage that is expected to be changed on Thursday.
“The forthcoming decision by the three judge panel will set rates for the next five years. It will be the first affecting digital sales.
“Meanwhile the Digital Media Association, which represents Apple and other online music services, has asked for the rate to be pegged at 4.8 cents a track.
“With CD sales falling last year by 20% to $7.4bn (£4bn), record companies are unlikely to be willing to soak up any increase in rates.
“Greg Sandoval at CNET said the timing of the emergence of the Apple document is interesting.
“’When it comes down to mass appeal, Apple holds all the cards. If word gets out that music publishers are trying to stick it to consumers, and Apple is fighting to keep prices down on their behalf, well, there’s liable to be public backlash against the labels. If this thing follows the normal course, there would be calls for boycotts, protests and so on.’
“Piper Jaffray estimates that Apple will sell 2.4 bn songs this year, giving it an 85% share of the digital music market.”
What’s actually happening, though, is that people posting on NME.COM are fingering Apple rather than the record companies, for what they consider to be greedy practises.
“Bearing in mind they now charge about the same for an virtual album than Amazon do for a physical release without the worry of warehousing, packaging and handling costs, and which comes DRM’ed, undersampled, unpackaged, and with no guarantee of fidelity, I think they’ve got a damn nerve.
“Even if their margins were trimmed, you’d think the massive profit they make on their hugely overpriced and annoyingly disposable iPods would offset any potential loss,” wrote one.
“I recently listened to my friend’s iPod after years of wondering what I was missing out on, and I was astonishing to discover that the sound quality was markedly WORSE than on my Sony mobile phone. The sooner these shysters and their crappy tin boxes get flushed out of the music market the better, as far as I’m concerned,
Here’s another post:
“Does anyone else smell shite whenever Apple claim if they have to give any more to artists they won’t be making a profit? I hope they do shut down, there are plenty of other competitors offering tracks at 50p and albums for a fiver. I can live without Apple’s greed anyway.”
And another:
“Yeah, like those greedy bastards would ever shut down iTunes, they need it to lock in people who buy their iPhones, iPod and other crapware.”
Fun and games eh?