Apple threatens iTunes Store closure

Stephen Withers
Wednesday, 01 October 2008 08:49

Opinion and Analysis

Since Apple is thought to pay around 70 cents per track to the labels, that would equate to 5.6 cents, still substantially less than the current royalty.

Even if Apple does close the US iTunes Store, iPod owners would still be able to buy music from outlets such as Amazon which sell DRM-free MP3 files. It might not be quite as elegant as the iTunes Store/iTunes/iPod process, but Amazon's software does have the ability to automatically load purchased downloads into iTunes.

The iTunes Store is the biggest music retailer in the US, but if it's still  barely profitable what can Apple do to improve that? The company's probably got all the economies of scale it's likely to get, so it needs to either reduce the labels' cut or increase prices.

Increasing prices could be problematic, as Amazon already generally matches or undercuts the iTunes Store. And Apple isn't the labels' favourite retailer, as can be seen by the reluctance to let it sell DRM-free tracks.

The idea that Apple relies on the iTunes Store to sell iPods seems to me to be a furphy. Various surveys have found that a very small proportion of music in iPods was purchased from the iTunes Store.

So while I really don't expect Apple to shut up shop, I suspect that the rest of the music industry needs to realise that while the company may be prepared to accept relatively small margins on iTunes Store sales if that's necessary to offer a complete package, it doesn't have to put up with making a loss.

If push came to shove, who's to say that Apple wouldn't outsource content sales in the same way that it came to outsource hardware manufacturing. 'iTunes Store powered by Amazon', perhaps?

But taking the iTunes Store out of the picture as an independent retailer would reduce competition, and ironically lead to the higher prices that Apple believes can't currently be achieved.