Apple Threatens iTunes Shutdown if Royalty Increase is Pushed Through

[Jason Dunn]

<div class='os_post_top_link'><a href='http://blog.wired.com/music/2008/10/thursdays-copyr.html' target='_blank'>http://blog.wired.com/music/2008/10...days-copyr.html</a><br /><br /></div><p><em>"Apple has threatened to shut down the iTunes music store if an obscure three-person board appointed by the Librarian of Congress increase the royalties paid to publishers and songwriters by six cents per song. The Copyright Royalty Board is scheduled to hand down its decision on these rates Thursday. As part of their general muscle-flexing of late, music publishers asked the board to increase royalties paid to publishers and songwriters from 9 cents to 15 cents per track. Apple -- which has mightily resisted tampering in any way with its 99 cent price point for tracks -- said that if the rate hike goes through and the labels refuse to absorb the entire resulting increase, the iTunes music store will become unprofitable."</em></p><p><img src="http://images.thoughtsmedia.com//dht/auto/1222876466.usr1.gif" border="1" /></p><p>If you put music on your Windows Mobile phone, your MP3 player, or your Zune, and you ever purchase that music from iTunes, this is news you'll want to know about. I'm not personally a big fan of iTunes, but I certainly support their stance in resisting this move. They've sold several billion songs, largely because the 99 cent purchase price of an iTunes song is a reasonable alternative to piracy for most people. If you give people a chance to be honest, they will - iTunes proved that. According to this Wired article, Apple pays artists and labels 65 to 70 cents per song, 9 cents of which the artist or studio is paying to the publishers. It seems to me that if this law were to pass, the increased rates should come from the artist/label end - after all, without the songwriter that created the song in the first place, they'd have nothing in the first place.</p><p>It will be interesting to watch how this plays out - the music industry has been undermining Apple and iTunes lately, offering DRM-free MP3s to Amazon while denying them to Apple. Steve Jobs isn't known for compromising (what with that huge ego and all), so this will be interesting to watch. And if this law does pass, what will happen to Amazon's MP3 store? Or Rhapsody's MP3 store? Will we see $1.10 pricing there (you just know they'd round up), or will they too shut down? This could have some dire consequences for online music stores, who all operate at razor-thin profit margins as it is. Could this kill or cripple the entire industry? The music companies would prefer to have us all buying CDs anyway, right?</p>

[Ricardo Dawkins]

is this ZuneThoughts or iTunesThoughts ?

[Jason Dunn]

is this ZuneThoughts or iTunesThoughts ?

First off, one iTunes post does not iTunesThoughts make.

Secondly, the Zune can play AAC files, so there are Zune users who purchase the DRM-free iTunes Plus songs for their Zune. And, regardless, it's relavent to the Zune world that Apple is threatening to shut down iTunes - they're the biggest online music store on the planet.

[Underwater Mike]

Well, as a recent convert from WM to iPhone, I wish Jason WOULD start an iPhoneThoughts site! :)

It's too bad that people won't boycott all music for a month or something to get the point across. It's not like you need new tunes to survive.

[Dyvim]

is this ZuneThoughts or iTunesThoughts ?
Even if Jason were taking a pro-iTunes stance, which he isn't, what would you care? I see you over on the iLounge forums evangelizing for the Zune all the time.

No matter your personal feelings on iTunes\iPod, this article is relevant to those interested in digital downloads.

[Stinger]

It sounds like an idle threat. Closing down iTunes would hurt Apple more than it would hurt the record industry. Amazon are the likely winner in all this.

[Rocco Augusto]

Could this kill or cripple the entire industry?


I think this is what the music industry wants. Right now Apple is on the top of the world where music is concerned, but it is amusing to see them pull the whole "I'm going to take my ball and go home!" stance just because they don't get their way.

Almost every other digital music downloading house is making the move to non-DRM MP3 music and you don't have to deal with the hassle of iTunes to purchase them. If iTunes shuts down it would only push more business to those other retailers while at the same time effectively killing the iPod. The iPod's success goes hand and hand with iTunes. No iTunes, no reason for people to continue buying iPods.

Trying to explain to the average consumer that you could use other applications to transfer music to the iPod is like trying to walk them through building a bomb. It is way to much hassle for most people. People would just move to a different device with a software that allows them to purchase music and upload it to their device.

Also can you imagine the backlash from individuals that wouldn't be allowed to access their music if Apple turns off their DRM servers and shut off iTunes. There could be riots in the streets!

[Felix Torres]

I favor the increase.
Especially as *streaming* rates are coming down.
Shifting a few cents from streaming to downloads will encourage internet radio and other streaming ventures without unduly punishing the creative types who've been generally shafted by Apple and the studios.
Besides, its about time *somebody* called Apple's bluff.
Shutting down iTunes?
Riiiighht!
That'll be a really cold day in...the amazon... :rolleyes:

[Fritzly]

The issue here is not Appl or Amazon or some other company, the point is that greedy music companies want to increase the prices of songs. It is interesting to see how many people are so Apple-fobic that act like that man who found the wife in bed with another man and cut his attributes as an act of revenge against her. Have fun when you will pay more for the music you download.

[whydidnt]

Wow, I wish I could get raise for work I've completed previously. If I understand this right, the royalty board is recommending the rate increase on all tracks, regardless of when they were published. This makes no sense. The reason we have copyright is to encourage people to create new works. These song writers already created their work under incentive of the old plan. They are just getting a bonus for no reason whatsoever.

I hope Apple does tell them to stuff it and pulls all impacted songs from iTunes. The artists and record companies can then lose EVEN more business to piracy, since folks won't reasonably be able to procur music they want in the way they want.

What public good is the Royalty Board serving by raising these rates? Do we have a lack of song writers? So much so, that we have to increase what they are paid for their work? My thought is that we have PLENTY of choice in music under the previous rate, so there is no need to raise this rate, and our cost for music. It seems obvious this Royalty board is not acting in the public interest as they should, but rather in the interest of the music industry. The government should NOT be in a position of propping up any industry, at the public in generals expense. (and that includes "other bailouts" you might have heard of recently).

[Ricardo Dawkins]

Even if Jason were taking a pro-iTunes stance, which he isn't, what would you care? I see you over on the iLounge forums evangelizing for the Zune all the time.
nice choice of words. You see me in threads where someone comes with a Zune half-truth or when someone is taking a decision between iPod or Zune and then one member comes with another lie...(like the radio remote has better reception than the FM radio on a Zune 30). Evangelizing....pffff. Please.

[Pony99CA]

According to this Wired article, Apple pays artists and labels 65 to 70 cents per song, 9 cents of which the artist or studio is paying to the publishers.
I'm confused here. If Apple charges $0.99 for DRM-encoded music and thinks this less-than-10-cent increase would make iTunes lose money, how can Amazon be profitable selling many DRM-free songs for $0.89, 10 cents less than iTunes? (I assume that Amazon is making a profit.)

Steve

[Felix Torres]

Have fun when you will pay more for the music you download.

As opposed to listening to it for free via internet radio?

[Pony99CA]

The issue here is not Appl or Amazon or some other company, the point is that greedy music companies want to increase the prices of songs.
While WhyDidnt made a good point about getting a retroactive raise, why call the music companies greedy for this? From my reading, this increase would go to the publishers and songwriters, not the music distributing companies like Sony and the others. (See the Wikipedia music publishing (http://en.wikipedia.org/wiki/Music_publisher_(popular_music)) article. Publishers aren't big businesses in many cases.)

It is interesting to see how many people are so Apple-fobic that act like that man who found the wife in bed with another man and cut his attributes as an act of revenge against her. Have fun when you will pay more for the music you download.
I'm sure you thought you had a point here, but it must have gotten cut off, too.

Steve

[whydidnt]

I'm confused here. If Apple charges $0.99 for DRM-encoded music and thinks this less-than-10-cent increase would make iTunes lose money, how can Amazon be profitable selling many DRM-free songs for $0.89, 10 cents less than iTunes? (I assume that Amazon is making a profit.)

Steve

I'm not privy to the individual agreements, but rumor has it that the Music companies are so intent on breaking Apple's lock on digital downloads they are offering "better" deals to the competition right now. Some labels even refuse to offer DRM free music to Apple, while offering it to Amazon and others.

[Pony99CA]

I'm not privy to the individual agreements, but rumor has it that the Music companies are so intent on breaking Apple's lock on digital downloads they are offering "better" deals to the competition right now. Some labels even refuse to offer DRM free music to Apple, while offering it to Amazon and others.
Maybe the music companies need a little anti-trust action sent their way. :D Sue Big Music! :eek:

Steve

[whydidnt]

Maybe the music companies need a little anti-trust action sent their way. :D Sue Big Music! :eek:

Steve

That's not really too far-fetched. They've been busted previously for price-fixing of CD sales. However, they have a very strong lobby. Even though most of what Big Music does is anti-conusmer, anti-artist, and anti-free market, our congress does what it can to protect Big Music's interest. :( See the recent legislation for a "copyright czar". :rolleyes:

[Fritzly]

As opposed to listening to it for free via internet radio?

Interesting comparison: it seems that for you driving your car or riding a bus is the same thing.
De gustibus non disputandum est but let us not compare apple with orange.

[Fritzly]

I'm sure you thought you had a point here, but it must have gotten cut off, too.

Steve

Let me repack it: there people so Apple-fobic that tey would prefer to pay more just to see Apple take a hit.
Very smart, even more considering that if the music industry would succeed against Apple it would be just a matter of few months before prices for songs would begin to raise steadily.

[Felix Torres]

Interesting comparison: it seems that for you driving your car or riding a bus is the same thing.
De gustibus non disputandum est but let us not compare apple with orange.

Not necessarily.
Remember, Wimax is on the horizon.
And cellphone broadband is getting affordable.

My point is that between protecting established vendors and encouraging new channels, I'd rather encourage new channels. Dropping royalties on small internet radio ventures to allow them to flourish and expand just as wireless broadband becomes common is something worth doing; protecting an inflexible, *blustering* established vendor with a deathgrip on a market, not so much.

Apple cries wolf too much; lets call their bluff and see if they're really hurting.

[Pony99CA]

Let me repack it: there people so Apple-fobic that tey would prefer to pay more just to see Apple take a hit.
Very smart, even more considering that if the music industry would succeed against Apple it would be just a matter of few months before prices for songs would begin to raise steadily.
But you can already buy music for the same or less at Amazon MP3 -- and DRM-free to boot. (I don't know what their track selection is, though.)

I also don't think people are Apple-phobic. Despite the grousing about Apple, I bet most of the people here like them a lot more than the RIAA or Big Music.

Steve

[Pony99CA]

My point is that between protecting established vendors and encouraging new channels, I'd rather encourage new channels. Dropping royalties on small internet radio ventures to allow them to flourish and expand just as wireless broadband becomes common is something worth doing; protecting an inflexible, *blustering* established vendor with a deathgrip on a market, not so much.
I believe that Internet radio had a holiday from paying full royalties (although I think that expired or is near expiring).

However, I agree with Fritzly that you are comparing apples (no pun intended) and oranges. Internet radio streams whatever the person (or computer program) on the other end of the pipe wants to play; with downloadable music, you get to play what you want, when you want. Both have their merits, but they really aren't comparable.

Steve

[tnels!]

Where is the 'Economic Justice?!' If iTunes will become unprofitable, the US Congress should step in and subsidize the site! The US Gov't should seize iTunes (Algore is already on the Board of Apple). Then Obama (after becoming Pres.) should tax the rich to lower the cost of all iTunes. After all, Music and the Arts is a right (see PBS and the National Endowment for the Arts), not a privilege! Bottom line, Madonna and Snoop Dog deserve more money and the "rich" (not me) should pay for it!!!!!

[whydidnt]

I believe that Internet radio had a holiday from paying full royalties (although I think that expired or is near expiring).

***long quote trimmed by mod JD***

Of course my question is why should Internet radio stations pay a higher royalty fee than terrestrial stations? What about music being broadcast over the Internet justifies a higher fee? It's pure and simple a money grab by the Music Cos.

[Rocco Augusto]

I'm not privy to the individual agreements, but rumor has it that the Music companies are so intent on breaking Apple's lock on digital downloads they are offering "better" deals to the competition right now. Some labels even refuse to offer DRM free music to Apple, while offering it to Amazon and others.

I don't understand why this is a bad thing. Until recently Apple had a virtual monopoly in the digital music distribution field pretty much leaving the record companies at the mercy of Steve Jobs. Offering other digital music shops like Amazon, Napster and eMusic better deals than they offer Apple essentially creates competition for Apple so they no longer have a strangle hold on the market.

While it would be nice it is just unrealistic to expect everyone to be treated fairly in this business. Heck if everyone was treated fairly in this business there would most likely be no business at all.

Of course my question is why should Internet radio stations pay a higher royalty fee than terrestrial stations? What about music being broadcast over the Internet justifies a higher fee? It's pure and simple a money grab by the Music Cos.

Well when you think about it, streaming music over the Internet lets you broadcast to an infinitely greater numbers of individuals than you would with a regular terrestrial station. It is unreasonable to think the music industry should charge equally for Internet radio and FM radio when the audience is not equal and can greatly differ in size.

[martin_ayton]

But you can already buy music for the same or less at Amazon MP3

No - *you* can already buy mp3s at Amazon. I live outside the USA and I can't do so. Neither can I get anything from iTunes at anything like a local equivalent of 99 cents.

DRM-free music downloads available from multiple sources, and available worldwide, sounds like the sort of sensible market situation that our legislators are supposed to encourage, and to require if necessary. However, they are not doing their job very well right now, so the monopolies are fighting it out for control. The music industry pretty much owns the content and iTunes pretty much
owns the customers. Neither of them care a hoot about what the artists or the customers want.

Seconds out! Round three!

[Snail]

Unless I've missed something, Apple pays 70 cents for every track, of which the artist gets 9 cents from the publisher...

How much work exactly has the publisher done to sell this track? It seems to me that the greed accusation has to be laid squarely at the music industry's doorstep.

If iTunes wasn't such a runaway success, legitimate music sales would be even smaller than they are at the moment.

[whydidnt]

Well when you think about it, streaming music over the Internet lets you broadcast to an infinitely greater numbers of individuals than you would with a regular terrestrial station. It is unreasonable to think the music industry should charge equally for Internet radio and FM radio when the audience is not equal and can greatly differ in size.

I don't agree with that argument. Does a 50,000 watt station pay more in royalty fees than a 10,000 watt station? Do New York city stations pay more than West Bend, Indiana stations? Why should an Internet station pay more because their potential market it larger, remember they are competing with a larger market as well. Plus, by its nature (changing slowly) Internet stations don't have as many or as flexible listening outposts, such as cars. The size of a potential market should have little to do with the cost of a service provided. The cost should be based on what the market itself will bear. However, in the case of music, there isn't a free-market. Rather a conglomeration of big business and a "Royalty-Board" that decide and dictate the cost outside of any true market pressures.

[Rocco Augusto]

...Why should an Internet station pay more because their potential market it larger, remember they are competing with a larger market as well.

The size of the market should have everything to do with royalty fees as it does with their advertising agreements. You get paid more for having more listeners, why not pay more in royalties for the same thing?

You seem to be forgetting something very important. The music doesn't belong to these Internet radio stations. They are in turn making money selling another individuals or companies product. At the same time the music industry doesn't want Internet radio to take off and they have every right to charge what they want to prevent it from taking off, it is after all their product.

[Jason Dunn]

The size of the market should have everything to do with royalty fees as it does with their advertising agreements. You get paid more for having more listeners, why not pay more in royalties for the same thing

Ah, but the assumption there is that the ads sold by these Internet streaming stations also scale up proportionately...and I'm not sure that's true. Can an online radio station sell ads for 100x more than it can sell a local ad? If it can't, then the math doesn't work out in their favour...

[whydidnt]

You seem to be forgetting something very important. The music doesn't belong to these Internet radio stations. They are in turn making money selling another individuals or companies product. At the same time the music industry doesn't want Internet radio to take off and they have every right to charge what they want to prevent it from taking off, it is after all their product.

I think you are forgetting it's not the music industry setting these fees. It's the copyright royalty board, a government appointed commission that arbitrarily sets these fees.

If it WAS the music industry, there are also laws in this country against competing companies fixing prices to drive out competition. If any other group of competing businesses acted in the way you mention the DOJ would be all over them.

[aristoBrat]

If iTunes shuts down it would only push more business to those other retailers while at the same time effectively killing the iPod. The iPod's success goes hand and hand with iTunes. No iTunes, no reason for people to continue buying iPods.
So long as virtually every one of those "other retailers" uses a download manager that automatically copies your DRM-free purchase from them into your iTunes library (if you use iTunes), I don't really see the iTunes Store shutting down as really affecting iPod sales.

I use iTunes as my music manager but pretty much only buy music from Amazon. You click the "Purchase Now" button on Amazon and the song is in your iTunes library seconds later. Other than using a web browser to browse/preview music (instead of the iTunes app), the work flow is exactly the same.

[Pony99CA]

The music publisher's royalty increase was denied (http://money.cnn.com/2008/10/02/technology/ituneswins.fortune/). I guess Apple won't have to shut iTunes down. :rolleyes:

Steve