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October 1, 2008

Apple Threatens to Take Its iBall and Go Home if Artist Royalties Rise

The timing of Apple's statement to the Copyright Royalty Board regarding a proposed raise is royalty rates to music publishers is curious.  Apple has said that it would likely close the iTunes Store if it could not run it at a profit, and a royalty rate increase for publishers may just do that according to its threat statement.  The curious part of the statement is that it was made 18 months ago and it's just coming to light now?  The CRB will make a ruling on Thursday.  You can read the statement here, courtesy of links from CNET.

The current rate is 9 cents per track.  Publishers represented by the National Music Publishers' Association want the rate raised to 15 cents per track.  The breakdown of that 99 cent iTunes purchase shows that Apple gets 21 cents, artists get their 9 cents, and the labels get 70 cents.  One would think that the profit margin for the labels is a little greater in the digital age given their lack of production costs for physical media.  No one has mentioned the breakdown for revenues based on the higher charges for songs with a better bitrate.  It's just a better quality version of the same file, isn't it?  Where does that additional 30 cents go?

Record labels for their part are actually urging a reduction to 8% of wholesale music sales.  CNNMoney reports that the Digital Media Association is seeking an even lower rate, 6% of wholesale sales, or 4.8 cents per track under current calculations.  Somehow, past talk about protecting the artist seems a bit hollow with these moves.

With 85% of the digital music market in its pocket, will Apple really follow through?  Most pundits think not, that this is really a negotiating ploy to keep the labels in line the next time pricing tracks becomes an issue.  The bluster that accompanied the last round of contract negotiations was filled with label talk of variable pricing.  More popular tracks would be priced higher and older catalog would be priced less.  Then the labels encouraged other stores to open.  Amazon went with unprotected MP3s and now Wal-Mart is following suit by abandoning DRM in its store.  Encouraging for consumers but the Apple market share has not dropped, nor has such a variable pricing scheme gone into general effect.  Apple sells a ton of tracks through the iTunes Store.  They are saying, in effect, that higher rates won't come out of their share of the music dollars.

Apple needs to keep prices low as do the other stores because the alternative is free, even if free is not legal.  Piracy hasn't abated despite the RIAA's numerous lawsuits.  Stopping piracy may be the real answer here, although the labels may discover that some music may not be worth owning even if they are the only (legitimate) game in town.  [MG]

October 1, 2008 | Permalink


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