Apple iTunes Store Closing Bluff Works

happygeek 0 470 Views

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.'

Dani AI

Generated

Good summary by — a few clarifying points that explain why that CRB fight mattered beyond the headlines.

The dispute was decided under the Section 115 “mechanical” compulsory license process, which the Copyright Royalty Judges re-open and resolve after multi‑party evidentiary proceedings every few years; those proceedings look at industry practice, benchmarks, and disruptive impact rather than simply splitting proposals down the middle. (See the CRB/Section 115 background and the Phonorecords I determination.) Federal Register — Phonorecords I (74 FR 4510, Jan. 26, 2009). (govinfo.gov)

What made the 2008 hearings unusually noisy was the range of filings: publishers (NMPA) pushed for a much higher per‑track mechanical, while the Digital Media Association (DiMA, which included Apple) proposed a much lower penny rate or a small percentage of revenue. Apple’s public warning about the 99¢ price point was therefore part of a larger set of competing benchmarks and business models submitted to the Judges. Coverage at the time lays out those positions and the immediate commercial stakes. [Ars Technica analysis / contemporary press]. (arstechnica.com)

The Judges ultimately adopted settlement terms that kept the established penny rate for permanent downloads/physical releases and added a penny structure for ringtones (and related administrative terms), which the industry then implemented and litigated in follow‑on rulemaking and appeals. The formal rulemaking and election of those terms is reflected in the CRB/Federal Register record. [CRB final determination / summaries]. (govinfo.gov)

The practical lesson: dominant platforms can shape outcomes by shifting the commercial frame (and regulators weigh disruptive impact heavily). That dynamic, plus the complexity the proceedings exposed, fed into later statutory reform (the 2018 Music Modernization Act and the creation of the Mechanical Licensing Collective) to modernize how digital mechanicals are licensed and collected. [U.S. Copyright Office — MMA / MLC designation]. (copyright.gov)

References: Federal Register (Phonorecords I), contemporary reporting at Ars Technica and Fortune/CNN Money, and the U.S. Copyright Office materials on later reform. (govinfo.gov)

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