Well after all the hoopla in the media regarding Apple threatening to shut down its iTunes Store if told to pay artists higher royalties we can rest at ease.
Yesterday the Copyright Royalty Board in the US made it’s decision to keep the royalty rates unchanged. The National Music Publishers’ Association wanted an increase of 60%. Just to put that into perspective that was an increase from 9c a song to 15c a song. However Apple makes such low margins selling songs at 99c that any increase could put the music store into a loss making situation unless Apple passed the increase along to its customers. Apples stand on this is that the marked is not strong enough to take an increase from the 99c price point
Apple had argued that raising music prices above 99-cents per track will be bad for its service. During the week iTunes VP Eddy Cue warned the company may close shop rather than pay up. Cue stated “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 went on, “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.”
According to reports Apple pays around 70 cents in every dollar to the record labels, who then hand across nine cents to the music publishers who control the copyrights to the music. When the publishers take their cut the artists get their share or royalty.
Music labels were also against raising royalties. How strange for Apple and the music labels to agree on something. In fact according to reports both Apple and the labels have been attempting to decrease royalties paid to songwriters and composers to just 6 per cent.
Apple is a major player in the distribution of music to the listening public and the closure of the iTunes Store (which I don’t believe would ever have happened) would have been a huge blow to the revenue stream of the music industry. To give you an example:
It has been reported that Piper Jaffray estimates that Apple will sell 2.4 billion songs this year. That is an 85% share of the digital music market, in addition the Recording Industry Association of America says sales of digital songs and albums rose 46% last year, to $1.2 billion.
