Apple iTunes showdown over U.S. royalty increase?


On Thursday, the U.S. Copyright Royalty Board is expected to rule on a request by the National Music Publishers’ Association that would increase royalty rates paid on songs purchased from online stores from the current 9 cents to 15 cents per track. While Apple has not commented on the upcoming decision, its stance on any royalty increase is well known.

As far back as 2007, Apple indicated that any such increase would increase chances that iTunes would operate at a financial loss. Essentially, Apple would prefer to shut down iTunes rather than seeing it lose money. Margins at the iTunes store are quite slim, indicates Eddy Cue, Vice President for iTunes. About 70 cents of every 99 cent song is turned over to the record companies who then turn over 9 cents to the music publisher. Record companies will not be in favour of absorbing the increase and will be looking to pass it down to the online music stores instead.

Meanwhile, the Digital Media Association, which represents Apple and other online music services, is pushing to reduce the royalty rate to 4.8 cents per track.

Would Apple really shut down iTunes? While its margins there may be slim to none, it cannot ignore the fact that iTunes helps sell iPods. It’s unlikely that Apple would make any decision that would impact that profitable business. Could higher song prices be around the corner instead?

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