Apple Threatens to Shut Down iTunes

by , 5:15 PM EDT, September 30th, 2008

The Copyright Royalty Board (CRB) is expected to rule on Thursday on an increase in royalties for music purchased online. Apple's Eddie Cue said that if that forces the iTunes store to lose money, Apple will shut it down, according to Fortune on Tuesday.

At issue is the royalty rates which could rise from 9 cents to 15 cents per song. Eddie Cue, Apple's executive in charge of iTunes, was reported to have told the CRB that Apple would shut down iTunes rather than raise the price of songs or absorb the proposed increase in royalty fees.

"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," Mr. Cue wrote to the CRB. "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."

The Copyright Royalty Board, which reports to the U.S. Library of Congress, and, among other duties, oversees royalty payments for music. A recent ruling by the CRB increased payments for songs played on Internet radio, and that brought the near collapse of Pandora and Internet radio. Congress had to step in.

It is well known that Apple's iTunes store make very little music money, enough to operate the service, and that the primary purpose is to sell Apple hardware -- iPods. Apple pays 7 cents of each 99 cents to the record companies. The remainder has to pay for operating expenses and credit card fees.

The record companies argue that rate should increase because digital music is increasingly popular and everyone will prosper from higher prices. A representative of the National Music Publishers Association, David Israelite, also complained: "We don't make a penny on the sale of an iPod."

It would be interesting to hear why he thinks the record industry should.