Apple threatens to close iTunes

Source: Exec Digital USA

Date :10/2/2008 5:20:34 AM

Apple has indicated that it would be prepared to close its iTunes store rather than absorb the cost of increased royalty payments, or raise its prices.

As Congress judges decide whether or not online musical distributors should be paying higher royalty fees – an increase from nine cents per track to 15 – Apple has “repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate iTS (iTunes Store) if it were no longer possible to do so profitably,” according to iTunes’ Global Vice President Eddy Cue.

Though the ruling will also affect other companies such as Amazon, EMusic, RealNetworks and Napster, Apple has become the most vocal opponent. The digital giant seems unwilling either to absorb the cost itself, or to increase its prices as “the US$0.99 per track retail price point is key to making the overall consumer value proposition compelling,” said Cue.

Apple’s comments have led UK entrepreneur Gary Morris, CE of iLoaded, to state that Apple is “holding its customers to ransom” and putting “the bottom line before its customers.” iTunes is estimated to make up just five percent of Apple’s sales, and an even lower percentage of its earnings.

While the Digital Media Association wants royalties lowered to 4 cents per song, music publishers are pushing for the 66 percent royalties increase, pointing out that many traditional retail costs are non-existent in digital music. "You don't have to ship them, there aren't any breakage problems," said David Israelite, President and CEO of the National Music Publishers' Association.

Cue stated that while Apple had invested millions in the creation and running of the iTunes store, it had to compete in an increasingly changeable market, and had the ever-present “unlawful competition” of pirated music to compete with too.

The ruling by the Copyright Royalty Board is expected later today.