Apple Threatens To Shut Down iTunes

The debate regarding how royalties should be allocated for digital downloads has reared its head once more. This time, the National Music Publishers Association (in the US) called for a 66% hike in royalty rates paid to its members on downloads from sites such as iTunes. Apple declared that this would “significantly increase the likelihood of the store operating at a financial loss” and threatened to shut down its iTunes store if the hike was enforced…

Where Does The Money Go?

The NMPA pushed for the increase to be approved by the Copyright Royalty Board, a three-judge panel that oversees statutory licenses granted under federal copyright law (CNN). The proposed hike would have taken the royalty on a 99c download from 9c to 16c. This would force Apple to either absorb the cost (probably making the business non-profitable) or pass the increase on to customers, neither option being met with enthusiasm by the company.

Fortunately for iTunes, however, the board rejected the proposal. Some estimates put Apple’s share of the digital download market at 85%, with their popular online store set to sell some 2.4 million mp3s this year. Although it was never likely that Apple would actually close iTunes, it is clear that they have significant clout in this arena and their protests certainly influenced the board’s decision.

Ringing The Changes

The CRB also set a 24 cent mechanical license fee for ringtones, with publisher rights owners entitled to charge a 1.5% late fee. This may bring some stability to a burgeoning market which has to date been rife with uncertainty; agreements have also been determined for mechanical royalties on streaming and subscription download services. Now all they need to do is arrest all those pesky P2P criminals…