Apple iTunes Store Closing Bluff Works

happygeek 0 Tallied Votes 410 Views Share

Earlier this week Apple was adamant that it would close the iTunes Store if the Copyright Royalty Board raised the royalties paid to music publishers, rather than be forced into either accepting smaller margins on the music downloads it sells or be forced into hiking prices.

The way these things work, Apple pays something in the region of 70 cents on every dollar of music sold to the record labels concerned. The record labels pay around 9 cents of this to the copyright holders of the music, the music publishers.

With me so far? Good. Trouble is, the National Music Publishers Association in the US wanted more. In fact, it wanted the share that music publishers rake from the deal to increase from that 9 cents to 15 cents per track.

As iTunes is thought to dominate the music download market with anything between an 80 and 90 percent market share, Apple obviously has a rather powerful position when it comes to negotiating such deals.

And so we arrived at the situation earlier in the week whereby Apple effectively told the Copyright Royalty Board that if it went ahead and granted the royalty rise, then it would pull up the shutters and shut up shop. Well, shut the iTunes Store at any rate.

Let's face it, that's a pretty powerful threat. Even though nobody really took them seriously. I mean, it is one thing arguing that you make 'very little profit' on music downloads, but quite another to close the very resource that has enabled the iPod to become such a huge success. Anyway, very little profit per track is still cool when you consider the sheer volume of sales that Apple enjoys. Pile 'em high and sell 'em cheap has worked well for many a market dominating business after all.

So nobody took Apple seriously, except it would appear the people which mattered. The US Copyright Royalty Board has now rejected the 15 cent rise, and instead driven the royalty rate up to, well, err, 9.1 cents where it will stay frozen for the next five years.

Somehow the National Music Publishers Association has spun this defeat into victory, claiming that it will bring clarity and order to the download environment.

I think what it really meant was 'phew, that was close, we would have lost everything if Apple had shut up shop.'