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Wednesday, 1 October 2008

Is this the end for iTunes?

The IPKat has just read with interest this item from the BBC on the latest turn in the digital royalties saga. Under the title "iTunes store shutdown feared" the story explains that the US Copyright Royalty Board is meeting tomorrow to rule on a requested 66% increase for sales of digital music from 9 cents to 15 cents a track for the next five years. Apple opposes the rate hike because it doesn't want to raise its 99 cents a song price and is unwilling to absorb the rise itself.

Apple says it won't be able to trade at a profit if the increase goes ahead. The National Music Publishers' Association, pressing for the increase on behalf of its 800 or so members, is unsympathetic. Says its president: "Apple may want to sell songs cheaply to sell iPods. We don't make a penny on the sale of an iPod". Figures from the Recording Industry Association of America indicate that sales of digital songs and albums rose 46% last year to $1.2bn ($652m).

Apple pays an estimated 70% of its digital music revenue to the recording companies, which in turn pass on a percentage to artists. It is that percentage that is expected to be changed on Thursday. If it changed, the increase must be paid by Apple or by the recording companies (in reality, says the IPKat, the person who pays ultimately is the consumer, whose purchases fuel the market in the first place).

Meanwhile the Digital Media Association, which represents Apple and other online music services, is reported to have asked for the rate to be pegged at 4.8 cents a track.

The IPKat doubts that this will be the end for iTunes, even in the unlikely event that the Copyright Royalty Board agrees the full 15 cents a track asked for. With a growing number of users, an ever-expanding catalogue of works and an expected boost in sales from newly-unemployed members of the banking community who now have more time to download their favourite tracks, ways will be found of keeping the business model afloat. Merpel adds: if iTunes goes under, just think what boost this may have for competition in the market for the delivery of digital recordings.

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3 comments:

John H said...

If (and I agree it's a big if - this smacks of brinksmanship) Apple close down iTunes, I wonder if they'd follow Wal*Mart's lead by shutting off their DRM servers so people's music collection is obliterated?

The Wal*Mart story is a very interesting one, incidentally. A good illustration of how DRM can end up punishing those "foolish" enough to play by the rules rather than downloading unlicensed music.

Anonymous said...

I believe you have your maths is unclear. Assuming US itunes tracks are $1 (actually 99c) the present situation is I believe as follows:

Consumer pays $1
RIAA receives 70c
Of that 70c NMPA members receive 9c

So once divvied up Apple gets 30c, RIAA gets 61c and NMPA gets 9c.

Thus its not the 70% of revenues that Apple pays that is to increase its the amount that the NMPA receive, which could come from two sources (i) Apple or (ii) the Studios that make up the RIAA. Personally, given that Apple pays the operating costs for the Apple Store from its share, it seems to me that the RIAA (who appear to receive the lion's share of revenues) should be looking to their pockets to recompense the people who actually produce the creative works and keep their businesses afloat.

Jeremy said...

It's not my maths -- it's the BBC's. I corrected the grammar but I can't do the sums as well ...

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