Stephen Withers
Wednesday, 01 October 2008 08:49
Opinion and Analysis
Page 1 of 2
Amid moves to increase royalty rates paid to music publishers, Apple has threatened to close the iTunes Store rather than increase prices or accept smaller margins.
The iTunes Store - formerly the iTunes Music Store - took commercial music downloads into the mainstream. Record labels were initially reluctant to offer unprotected files, so Apple developed its FairPlay DRM scheme which they accepted.
The main alternative was Microsoft's WMA DRM scheme that was adopted by various music retailers, but WMA files don't work with the iPod. More recently, the labels have sanctioned unprotected MP3 and AAC files which work with practically any music player, mobile phone or computer.
However, most labels have declined to offer DRM-free files through the iTunes Store, a decision thought to stem from concern about the Store's huge market share, estimated at 90 percent in 2007 and still thought to be around 85 percent despite increased competition from retailers such as Amazon.
The (US) National Music Publishers Association is seeking an increase in royalty rates from 9 cents to 15 cents per track, and the Copyright Royalty Board is expected to make a ruling this week.
Apple's submission to the Board asserts that the company makes very little profit on music sales, and that a price hike would adversely affect sales volumes.
The Digital Media Association has argued for a rate reduction to either 4.8 cents, or 6 percent of applicable revenues. The record companies - faced with falling CD sales that have not been offset by increasing online sales partly due to customers cherry-picking individual tracks instead of buying entire albums - want the per-track method to be dropped in favour of a royalty of 8 percent of wholesale revenue.
What would that mean to the publishers? And what are Apple's possible options? See
page two.
