Filed under: Apple Corporate, iTS
VP: Apple would rather close iTunes Store than pay additional royalties
If a ruling expected tomorrow by the Copyright Royalty Board raises royalties for online music sales from 9 to 15 cents per track, Apple would rather shut the iTunes store down than operate it at a loss.
Them's fightin' words.
Eddy Cue, Apple's iTunes VP, wrote in a statement to the Times of London, "If [iTunes] 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. Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate [iTunes] if it were no longer possible to do so profitably."
Of course, this is the "nuclear" option. Apple is most likely trying to gain aggressive leverage before the CRB decision is made. Apple is essentially asking music publishers, "do you want all the revenue you've earned through iTunes, or another measly 6 cents per track?" Shrewd, but is it shrewd enough?
Some analysts speculate that Apple is more likely to pass the additional cost on to the consumer, rather than demolish a key slice of their business. What that will do to sales in the U.S. is hard to say.
If the CRB raises royalties, what do you think will happen? Will you continue to buy music online? Sound off in comments.
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Reader Comments (Page 1 of 3)
glad said 8:13PM on 10-01-2008
The songwriters must have been smoking crack to come up with a 6 cents increase 66.6% increase on the existing rate who does that in these troubled times, sheer greed and madness, if that increase gets passed onto the consumer watch illegal downloads go through the roof and the songwriters will get a great big zilch of it.
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atuck said 12:53PM on 10-01-2008
I havent bought anything from the iTunes store in a very long time. Amazon has cheaper albums and no DRM.
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LD said 1:13PM on 10-01-2008
I am right there with you. I have bought music downloads recently, but not through iTunes. Amazon is the way to go for me. Cheaper, no DRM, better quality. Seems like a no-brainer to me.
Robert Palmer said 1:19PM on 10-01-2008
Amazon will be affected by these price increases, too: CRB is setting rates for all online music sales in the U.S.
Will that affect your buying habits?
Zak said 2:12PM on 10-01-2008
Amazon also has more expensive albums (hint: variable pricing does not mean "always cheaper") and their selection isn't as good. There are still plenty of good reasons to use iTunes rather than Amazon.
Neel said 12:45PM on 10-01-2008
The execs in the music industry are total IDIOTS. Ways to legally download music are allowing them to make money, but they are so greedy that all they are doing is forcing people back to getting music illegally...which they wanted to prevent in the first place.
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bugnuts said 12:48PM on 10-01-2008
so true
Brendan said 1:08PM on 10-01-2008
I agree. They keep taking away these convenient and legal ways to download and blame consumers for downloading illegally. I love logic.
brian said 1:36PM on 10-01-2008
you are obviously confusing record companies with organizations such as ascap and bmi, being represented by the copyright royalty board. these royalties do NOT go to record companies, they go to the publishers/songwriters (copyright owners). despite what you see on mtv cribs, 99% of songwriters are not very wealthy. the point of this is NOT to increase the price of records, just to increase the percentage that goes to the publishers and songwriters (in my opinion, the people who deserve it).
Neel said 2:11PM on 10-01-2008
@brian. My bad for confusing the two. I agree that the songwriters should get the money, definitely moreso than the record labels.
p.s.- i definitely do not watch cribs or whatever that show is called haha, and I agree too that songwriters are underpaid, and they definitely do deserve a bigger percentage.
Zak said 2:21PM on 10-01-2008
Brian: Yes, the point is to give more money to the artists, which is great. The problem is that the labels are not willing to eat the cost (despite the fact that they take the vast majority cut of all music sold) so they're going to force it onto Apple and other resellers. They're going to tell Apple to raise their prices to cover the increase, or they're going to demand a higher cut from Apple to cover it.
Apple said they will not raise prices so option #1 is out. Apple also said they don't want to operate a loss which is what will happen with option #2, since they're only barely doing better than breaking even right now. So that means either Apple will shut down the store, or the labels will pull their music off the store.
The labels take 70% of every song sold. Apple is only making enough to barely break even. The solution is for the labels to be less greedy and simply take it out of their cut. But since they're not going to be less greedy, that's not going to happen.
mabhatter said 8:00PM on 10-01-2008
I would have expected Apple to be "outside" these rules as they have agreements with labels directly to SELL tracks online, for a higher price, not stream or broadcast them. This rule is designed for places like Pandora or Yahoo! Music that stream music like a radio to random people that are not supposed to keep it as the sole source of income, it was never intended to cover SALES of music, especially at an already higher price.
The publishers/labels are the ones pushing for this, not artists, they are the same ones that Apple already agreed to a set price with, now they are trying to double dip.
Bernard Ramsey said 12:49PM on 10-01-2008
And if Apple closes the iTunes store, I'll stop buying music. Well, okay, maybe not. Or how about this possibility: Apple steps up their efforts to market themselves as a music label.
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Andy said 1:02PM on 10-01-2008
What a joke, really. This is one of the few industries that could feasibly be unaffected by all the inflation and rising prices in our market. Yet the powers want to still raise prices just because they can.
The only solution that's good for the consumer is to cut out record companies entirely. Wouldn't that be the day!
ct said 3:57PM on 10-01-2008
apple needs to make the same offer to artists as they do iphone developers: a cool clean 70% of the sale price. It's definitely fair for developers, and it'll be a lot more than fair to artists.
if i were an apple exec, i'd push to use this to eat the labels' lunch.
Adam said 11:17PM on 10-01-2008
@ct:
and which artist is going to be able to come up with the money to sit in a recording studio for a month in order to put out those tracks?? The labels take care of that cost for the artist ...
Rog said 3:22AM on 10-02-2008
I don't believe Apple can act as a music label. That's part of the Apple-Beatles agreement over the Apple name; it includes a limit on their activity in the music market.
KA said 12:50PM on 10-01-2008
Eek!
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Bko said 12:57PM on 10-01-2008
emule here I come!
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Acton Gorton said 1:02PM on 10-01-2008
Meh. Either way, I plan to keep using FrostWire for the music, and supporting the artists by going to their concerts.
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