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Apple takes hard line on online music royalties

updated 05:10 pm EDT, Tue September 30, 2008

Apple fights music fees

Apple is taking a hard stance on proposed increases to online music royalties, one which could threaten the very future of the iTunes Store, Fortune reports. The Copyright Royalty Board -- a panel of three judges which oversees licenses issued under federal copyright -- is scheduled to make a ruling on Thursday, on the subject of a proposal by the National Music Publishers' Association. Following last year's end of a 1997 agreement covering music royalties, the NMPA proposed an increase on the amount collected from each individual track sold online, from 9 to 15 cents.

Since 2007 however, Apple's iTunes VP, Eddy Cue, has suggested that the company would prefer to shut down music sales completely rather than raise prices or allow royalties to affect profits. If royalties were to increase, Cue writes in one statement, "the result would be to significantly increase the likelihood of the store operating at a financial loss -- which is no alternative at all."

"Apple has repeatedly made it clear that it is in this business to make money," the statement goes on, "and most likely would not continue to operate [iTunes music sales] if it were no longer possible to do so profitably."

Cue notes that Apple makes relatively little profit from music sales, due to low prices meant to encourage a young industry. Some 70 cents per dollar are used to pay record companies, and it is from this amount that the 9 cents are delivered to music publishers. It is thought that the record companies may refuse to absorb royalties themselves.

The Digital Media Association, a group representing online music vendors such as Apple, has in fact pushed for lower publisher royalties, as little as 4.8 cents or 6 percent of applicable revenue. The NMPA defends its position, and claims that the DMA's counter-proposals have already been defeated. "Apple may want to sell songs cheaply to sell iPods," says NMPA president David Israelite. "We don't make a penny on the sale of an iPod."




by MacNN Staff

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Comments

  1. slider

    Joined: Dec 1969

    -3

    Bad Timing

    I doubt Apple would shutter iTunes, they'd be shooting themselves in the foot. While it seems these comments were made a year ago, when the economy was perceived to be doing better, this actually going forward would undoubtedly worsen projected online music sales in what is sure to be already slowing down. What I don't understand is why Apple would not just pass these costs to the consumer, ie $1.05 a song. Surely digital music has come of age and can stand on it's own. Again, this is bad timing, but songs weren't going to stay 99 cents forever.

  1. buckzone

    Joined: Dec 1969

    +4

    That is BS

    Quate: The NMPA defends its position, and claims that the DMA's counter-proposals have already been defeated. "Apple may want to sell songs cheaply to sell iPods," says NMPA president David Israelite. "We don't make a penny on the sale of an iPod."

    This is so full of bs! Apple sells there mp3's the same about as any other place example: Amazon!

    Plus David Isrealite, do you guys make money on cd players, phones, mp3 players, computers, or Zune mp3 player?

    Give me a break. You guys complain about people stealing music and then when someone comes out with something to solve that problem, your find until you get greedy and want more money.

    The apple store has helped the music world. Especially the artist who try to sell cd's that there's only one good song and the rest of the songs suck!

  1. garmonbosia

    Joined: Dec 1969

    -4

    bullshyte

    ipodnn said "Since 2007 however, Apple's iTunes VP, Eddy Cue, has suggested that the company would prefer to shut down music sales completely rather than raise prices or allow royalties to affect profits."

    I challenge ipodnn to find me a quote where Eddy Cue said Apple would close down iTunes rather than let an increase in royalties effect profits. No Apple employee would say that because they don't make a profit on iTunes.

    Comment buried. Show
  1. testudo

    Joined: Dec 1969

    -14

    Re: That is BS

    Well, all your ranting is fine, but he's not arguing that he should get a cut of all that. He's just saying "Apple wants to keep music prices down so they can sell more iPods. This is great for Apple, but doesn't help our clients, since they don't get a cut of any of that".

    And you all complain about the artist not making any money on sales. Now they want to raise the royalties to the artists, and you whine about how it is too much.

    Comment buried. Show
  1. testudo

    Joined: Dec 1969

    -14

    Re: bullshyte

    Maybe you could just read the f'ing article, and then talk to fortune.

    "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," Cue wrote. "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 ."

    Comment buried. Show
  1. testudo

    Joined: Dec 1969

    -14

    amazing

    Who knew that raising the price of a single on the iTMS to $1.09 would cause the store to lose a significant amount of sales so vast that it would drive the store completely out of business. You wouldn't think 500 million sales a year would be affected so much by 10 cents.

    And what is Apple trying to do? Cut the royalties in half. I guess they want to make more money too (but that's OK, esp. if it gets the freakin' stock price back up to respectable levels!).

    Oh, and garmonbosia (if that is your real name), please show us the proof that Apple doesn't make a profit on the iTMS. Of course, since its one of the "art" industries, I'm sure they've hired the same accountants the studios hire to cook the books to say "Hey, sure we made $1 billion last year on the new Batman movie, but that's the gross. After expenses, we're still in the red").

  1. Johnny Niles

    Joined: Dec 1969

    +3

    Wrong

    Testudo, your comments are as misplaced as ever. They want to raise the royalties to the artists at Apple's expense and not the record label's expense. Since the record labels are already making vastly more money off music than Apple is, why should Apple be responsible for increasing the amount of money the artists get paid? That agreement is with the labels, not Apple. Apple is just a reseller.

    How does it make any sense at all to charge Apple more money to pay the artists? It doesn't. It's entirely the responsibility of the labels to pay the artists more money. Yes, the artists deserve more money. No, it's not Apple's responsibility to give it to them. Why should Apple operate at a loss just so the labels don't have to pay an additional 6 cents on the dollar to the artists? They shouldn't.

  1. MacnnChester

    Joined: Dec 1969

    +8

    What!?

    So if the artists want a bigger cut, then Walmart, Costco and Amazon have to give them a kickback too!?

    This is a beef between artists and labels - the argument between who owns a stake in the content, intellectual, artistic property.

    Apple is in the distribution business, like truck drivers and Safeway. Why is this even an issue?

    Sure artists should get more as labels get less (due to smaller overhead in digital) and Apple gets just enough to make a profit. Then if artists really want more they get their butts on the road and do live concerts.

  1. zaghahzag

    Joined: Dec 1969

    +4

    what a joke

    Apple should push for the royalties to artists to be about .25$ per song. Then have the artists end-run the record companies and get the royalty themselves. That would save all of us the RIAA, get artists money for their work and still leave apple money for it's profits.

    As it is, artists don't make much of anything on any music sales, unless they have a small label.

  1. the404error

    Joined: Dec 1969

    -3

    Sunn O)))

    Nice Sunn O))) Picture! Haha

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