Apple Threatens to Shut Down iTunes


This Thursday, a ruling by the Copyright Royalty Board will decide the fate of iTunes as artists demand greater royalties.

According to Fortune, the National Music Publishers’ Association is seeking to increase the royalty rates for artists from 9-cents to 15-cents per track purchased on online music stores; a 66-percent increase. The problem is that no one wants to be the one who pays for it. Currently iTunes charges 99-cents a song, with 61-cents of that going to the record industry, 9-cents of it going to the artists and the rest going to Apple. Apple claims the 29-cents per song it makes is barely is enough for maintenance costs, let alone a profit.

According to a statement made last year by iTunes vice president Eddy Cue, "If the [iTunes music store] was forced to absorb any increase in the ... royalty rate, the result would be to significantly increase the likelihood of the store operating at a financial loss - which is no alternative at all." Clarifying that statement further he says, “Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate [the iTunes music store] if it were no longer possible to do so profitably.”

While Apple may threaten to shut down the iTunes music store, the reality is that it may of been just an empty threat. Currently iTunes is the leading online music retailer, but it still only makes up a small portion of all music sales. Closing its doors could result in Apple losing its edge, even if the store closed only temporarily, giving enough time for alternative music sources to take hold. It definitely would not be a move stockholders would appreciate; as if the stockholders have not already taken enough of a beating from the current economy crisis.

Furthermore, by Apple shutting down iTunes to fend off music artists, Apple may taint its own marketing image by appearing as a greedy monster that is against music artists. As well, Apple also depends on the iTunes store to sell iPods; even if the iTunes store ran slightly into the red, Apple could still overall benefit from having it. The iTunes store also sells more than just music, but it also offers applications, audiobooks and videos, all of which may be affected in a negative way for Apple if it stopped selling songs.

While the concept of increasing the cost of a song instead of just absorbing the cost may sound sensible, Apple fears such a tactic will negatively affect sales. "I have no doubt that an increase in the per track price would lower total music purchases at the store," Cue had said in a statement. 99-cents is an appealing number for consumers, but it also gives Apple a reason to have a low fixed price on songs. If the price of a single song broke past the 99-cent barrier, suddenly there would be no limit on what could be demanded. $1.09 this week, next week the record industry could be demanding it be set to $1.29, with a song costing as much as an album before long.

The fact is, for some artists, that is exactly what they want. With customers able to pick and choose from low-priced singles, artists that became familiar with selling CD albums stuffed with filler are feeling the burn. Would you buy Katy Perry’s album, when the popular hit ’I kissed a girl’ is all that you want? With the current credit crunch and with heavy inflation looming, iTunes may soon be forced anyways into increasing the price of tracks to over 99-cents.

While artists are actually on the short end of the stick in this matter, their attempt at increasing royalties may not be just about making more money, but it could also be a counter-measure to prevent their royalties from actually being decreased. There has been a lot of effort to actually slash royalties of artists from 9-percent down to 4-percent, so in making a stance saying they are already undervalued could help their cause and prevent decreased royalties.

In the end, there is still the obvious answer, just cut back on the record’s industry massive 61-percent cut. The industry is out-of-date and the greed the industry has grown accustomed to seems silly these days. The chance of this happening though will require Apple to make threats against the big labels, to show that it is serious about the issue. With the record industry down 20-percent in sales with their old CD cash cow and profits now appearing from online retailers like iTunes, the record industry needs to start showing some gratitude. Otherwise, the industry may just end up killing the goose that is popping out the golden eggs.

Without iTunes ease of use, its excellent marketing, its iPod monopoly and fair iTunes pricing, the online music market may revert back to the chaotic days of Napster. Apple needs to show it won’t budge on the matter, to force the record industry’s hand, although really, Apple is just blowing hot air.