Apple Threatens to Close iTunes Store Over Possible Royalty Hikes

[TiggsPanther]

As someone who has been a VP of a very large independent label in the past, and currently runs my own small boutique label, (Both with iTunes distribution), none of this makes any cents. The current $.091 per track is a compulsory mechanical license that the RECORD COMPANY pays to the SONGWRITER. If that goes up to $.15, no where in that agreement does apple have to change a thing. I still get my ~$.70 or whatever per track as the label, and its my responsibility to pay what the law required. It cuts into MY Profit margin, not the retail outlet, not the distribution company, and not the artist.

Thanks for posting this. It's very interesting to hear from somebody in your position. It's especially interesting to hear from someone who would be adversely financially affected by the move, but who doesn't necessarily see it as Apple's responsibility.

So if you get approximately 70¢, that leaves about 29¢ that I'm guessing gets split further before Apple take their cut? Or even if not, thats certianly less than some people sometimes think Apple get per sale.

So far, I can't see what any of this has to do with apple at all????

Well, apart from the likelihood of some of the (larger multinational) record companies trying to absorb the extra payout by attempting to force a prce hike. But even if this worked, it would be Apple's hand being forced by an external pressure.

Let me tell you, the record companies can not afford to give up iTunes right now. When Wal-Mart was the top game, we bent over and took whatever crap deals they through at us. iTunes is crazy generous compared to Wal-Mart 98% of the time.

as an indie label, iTunes is the most indie friendly music retailer out there. I honestly believe that iTunes could survive without major label content. It all sucks anyways.

Again, I'm glad to actually hear an indie label's side of things. I don't doubt that there could be better deals and I know that Apple sure don't get things right all the time, but it's nice to hear situations where they seem to be doing it right.

 

[fat phil]

[regarding shutting down Music Store and living off App Store] Well I think this would be a good alternative, to shut down the music part of the store if they really would want to prove a point, but still it's sad that it has to come to this. One of the things I liked about iTMS is having new songs by new artists/bands at a glance and a click away.

The problem here is that Apple claim not to make a profit from the App Store. This may or may not be true, but regardless they would have to increase their cut percentage on apps, which would force most devs to increase their prices to maintain the existing income level. A white elephant possibly, volume vs. price is a long argued subject, but it would happen none-the-less.

 

[eastcoastsurfer]

It's not that the iTunes store is a bad thing. It's just the simple matter of paying for something that you can get for free. Why would you do that The iTunes store is great for people who love paying for things they can get for free. I have an iPod like most people on this forum and I have a couple thousand songs in my iPod but not one of them was purchased through iTunes. And that is simply because I can can get the same music iTunes sells through other means for free. Thats probably what he meant when he said he never used it and never will. Me either. They can shut down the store RIGHT NOW - I wouldn't care. As long as I can still synch and update my iPod Touch software - I don't need the music store.

Wow, just wow. So, instead of paying for anything you just steal it? I mean everything can be gotten for free in some form or fashion. I'm all for rights once something is paid for (no DRM, etc...), but it's people like you that make the companies work so hard to implement anti-theft safe guards.

 

[7egend]

It's Just Leverage...

They are basically using the number 1 online music selling service as leverage. If iTunes closes down, then there is really no need for an organization that tells you how much to charge for royalties.

I think it's very smart on Apple's part to state very casually that the cost would greatly affect iTunes, and would thus cause it to close down. Apple is actually fighting for the consumer on this trying to keep costs to a minimum.

I thought more of you would appreciate that....

 

[MacTraveller]

I must have missed chequepoint's earlier post. Now that I've read it, I'm glad to know that Apple's iTunes Store is actually a champion of the indie labels and treats indie artists/labels very generously. That's good to know.

 

[Gray-Wolf]

It's just a $.06 increase. Simply make the songs $1.05 which would cover the increase.

 

[spydr]

I already wonder how the 'others' have been giving away higher bit rate and/or DRM free tracks for 99 cents or even a bit cheaper — do you think they are all losing money already and don't really care if they bleed even further? How they aren't saying anything?

If 99 cents a track model does become a unsustainable model, I would still think iTMS would be the last store to close and not the first.

 

[grimmace]

Threat?

Here's a threat. Close the iTunes store and we will download as much music and movies possible and all illegally. Nothing to stop it. I wont pay any more than the current level. Any more and its limewire for me.

 

[JPS2008]

Why would the record companies agree to that?

They wouldn't receive any more money if the royalty increase went ahead (the money goes to NMPA, not the labels). If Apple wanted all DRM-free tracks, they would have to actually offer something to the labels in return for them agreeing to it... which would mean another price increase on top of the royalty-induced hike.

Why would the record companies agree to it ?

For all the reasons explained in the post by chequepoint. If the record companies are going to be the ones hit by the increase in royalties and they don't have a good way of passing that on to Apple, what other options do they really have other than to negotiate with Apple ?

If they expect Apple to give something up (moving away from the $0.99 price point) then they'll need to give up something. About the only chip the companies have left to use is DRM.

I'm not saying the record companies will be happy about it. But if they intend to stay in business I think they'll eventually recognize it's in their best interest. Sure they'd like to have Apple charge more for them to get an additional cut of the revenue, but that's not going to happen to the extent that they'll ever be really happy.

Frankly, if the record companies, Apple and the artists are all crying that they're not getting rich off the sale of music, then that suggests to me that the revenue distribution is probably pretty fair.

Jon

 

[babyj]

Any increase from $0.99 due to the labels, artists or songwriters wanting more money is just pure greed on their part. They view the download market as an easy way to make a quick buck and they're trying to squeeze every cent out of it that they can. They already get a far better return on download sales than they do on physical sales, yet still they want more.

A major label would be lucky to end up with 50% of the sale price of a physical sale once you take in to account all of their costs - manufacturing, distribution, returns, storage, unsold stock, promotions etc. An indie label would get even less than this, probably 40% at best. With downloads they get 70% of the sale price and there is little financial outlay or risk for them.

How can they honestly justify wanting more?

 

[breeze]

Apple CAN Close the iTunes Store-and still offer iTunes...

ITunes is Apple's interface and syncing engine to the iPod and iPhone, but anyone who wants to load music independently without the hassles or DRM or at a higher 44.1 Khz resolution - can do so without resorting to buying music from iTunes by using iTunes as a tool as opposed to purchasing from the store...

So Apple can still offer iTunes as a tool and stop selling music through it.....

Greed will kill the goose that lays the golden egg. Music Labels should be the targets for more royalties not Apple.

 

[combstwin]

No brainer…

Apple will work this out, just use the force!

 

[MacTraveller]

I already wonder how the 'others' have been giving away higher bit rate and/or DRM free tracks for 99 cents or even a bit cheaper — do you think they are all losing money already and don't really care if they bleed even further? How they aren't saying anything?

So, are you the only person that doesn't already know the old news last year.... the old news that THE MAJOR LABELS (such as Sony BMG, Warner) have signed exclusive DRM-free agreements with stores like Amazon, but at the same time have they have denied Apple the right to carry their DRM-free albums?

It has been said many times already that those deals that excluded Apple were possibly illegal and anti-competitive practices (they excluded Apple because they wanted to bring down Apple's market share dominance, fearing that Apple was way too influential in the music industry and that Apple had too big of a headstart). So those MAJOR LABELS signed exclusive deals favorable to Amazon and others. But not to Apple. This is why iTunes Store is still stuck with many DRM tracks, and not very many DRM-free albums except for EMI.

This is old news, but feel free to read the article here:
http://blog.wired.com/gadgets/2007/08/universal-goes-.html

 

[Hattig]

Any increase from $0.99 due to the labels, artists or songwriters wanting more money is just pure greed on their part. They view the download market as an easy way to make a quick buck and they're trying to squeeze every cent out of it that they can. They already get a far better return on download sales than they do on physical sales, yet still they want more.

A major label would be lucky to end up with 50% of the sale price of a physical sale once you take in to account all of their costs - manufacturing, distribution, returns, storage, unsold stock, promotions etc. An indie label would get even less than this, probably 40% at best. With downloads they get 70% of the sale price and there is little financial outlay or risk for them.

How can they honestly justify wanting more?

If you are 4 people in a band, and you release an album every year, and you get 9 cents per song sold (so say $1 per album) you would have to sell 200,000 albums a year just to get a rather poor wage each.

The problem is that the labels are taking too much of the money themselves. Sure, some of that covers up-front investment in many bands (including many that fail) but the rest is pure, unadulterated greed. Packaging, distribution, manufacturing costs for digital files? Yeah, right...

 

[TINCAN78]

Its not going any where. It would cause their shares to plummet and have a direct impact on hardware sales

 

[twoodcc]

i highly doubt apple would close the store.

 

[hagjohn]

If I was Apple, I would tell them that if they raise the price, they with DRM free it. I don't use Apple because of the DRM.

 

[knucklehead]

It's about the SONGWRITER'S Royalties!!!

People keep making remarks about the singers and bands, the "greedy" record companies, the "artists" etc, which have nothing to do with this story. This is about the National Music Publishers' Association (NMPA) requesting an increase in royalties for the copyright holders of songs. Many times the performer is also the author/copyright holder, but not always.

As an example most people should recognize, if not necessarily like, I will use the song "My Heart Will Go On" as sung by Celine Dion. (Ugh, I know, but let me continue.)

This song was performed by Celine Dion.
The recording of this song is published by Columbia/Epic Records.
This song can be bought on iTunes ( & Amazon, etc...)
This song was written by James Horner (Music) and Will Jennings (Lyrics).

That last line is the crux of the matter. Horner & Jennings wrote this song. They created it. They own the copyright to THE SONG.

The NMPA wants Horner and Jennings to get 15¢ for each download of this song sold instead of the 9¢ that they get now.
Not just from iTunes, but from Amazon as well and anybody else who sells music by download.

6¢ may not seem like much, but it has to come from somewhere. This 99¢ pie is already cut, and there is none left in the pan to give away. So who becomes liable for the 6¢? Apple already has contracts stating how much they give to record companies for each song sold. Record companies have contracts for how much they pay the various people involved in the recordings. If you increase the size of the pie (raise the price per song), everybody's slice gets bigger. But the price would have to go to $1.67 per song to make the 9¢ piece into a 15¢ piece. Otherwise somebody has to give up some of their pie. Since Apple is adamant about not raising prices, who is going to give up some of their piece (percentage) to redistribute 6¢ of the 99¢ pie? It's probably the record companies since they pay the songwriter's royalties. but they sure won't like it. They'll probably eventually take it out of someone else's piece.

Considering that iTunes sells over 6 million songs per day, at 6¢ per song we are talking about over 2.5 million dollars per week in royalties.

I don't care if you're Warren Buffett, Jimmy Buffett or the local Chinese Buffett (I know it's buffet, but as Otter said, "Forget it, he's rolling."), if someone suddenly takes 2.5 million dollars out of your pocket every week, you're gonna be pissed off!

In Apple's case they may be making less than 6¢ profit on each song. IF Apple has to give up this money they would then be losing money for every song they sold. There is a point where no matter how may iPods they sell, this becomes pointless.
I don't own an iPod. If I buy music from iTunes i burn it to CD's. No iPod subsidy from me, or from millions like me.

A business that loses money eventually goes out of business. Period.
If Apple loses money selling music, they won't sell music. Period.

--
END OF RANT

It's nice to see a few posts in this thread that are actually informative (and informed)

An interesting article for anyone interested in these issues:

http://www.wired.com/entertainment/music/magazine/16-01/ff_byrne?currentPage=1

 

[julohan]

iringtones

Off topic, what is the deal with ring tones. I wanted one for my Iphone. The majority of the songs cannot be made into a ring tone. I have pc at the moment.

 

[CallsignBaron]

Somebody please help me understand...

The iTunes store would get a lot more of my business if they lowered their price and made all their selections lossless. I can't understand paying a premium for an album when the songs are compressed and I do not get the physical medium. I can regularly find the CD on Amazon for less than I can buy it from iTunes and I get the physical CD, ALL of the album artwork, sometimes lyrics and then have the benefit of downloading into iTunes in a lossless format. Maybe some of you fanboys can explain to me WHY you are willing to pay EVEN MORE??

 

[doemel]

How about this? We'll give you, the artists, 1¢ more and in return you, the artists, can start giving us some good music for once.

There are way too many one hit wonders out there just looking for that one song to try and retire on.... and even those one hits don't have much replay value after they have cooled off 1 year later.

there's plenty of good music out there, even today. you just have to turn off mainstream radio, music television and start digging for it yourself. it won't be fed to you through mainstream media.

 

[opeter]

This is great news!

Apple could finally concentrate their whole financial and other powers on the Macintosh computers (i personally dont like iPhone, iPods and other such similar "things").

Back to computers, my dear Apple.

 

[MM2270]

Incredible that these poo poo heads want to RAISE royalties during a time of financial crisis that is affecting not just the US, but many parts of the world. Don't these idiots realize that most of us have LESS disposable cash to spend on unimportant stuff like the latest hit song? What is it with these people??

 

[Bubba Satori]

Apple will work this out, just use the force!

 

[MacTraveller]

This is great news!

Apple could finally concentrate their whole financial and other powers on the Macintosh computers (i personally dont like iPhone, iPods and other such similar "things").

Back to computers, my dear Apple.

You know you may be right. In the end, Apple is primarily a computer company. It's always been about Macs, the heart of the company.

Maybe the closing down of the iTunes Store is just the beginning... the start of a systematic contraction where Apple eventually SPINS OFF and sells off their iPod/iPhone business unit. Sell it off to another company such as Google or Dell or Microsoft or someone who is desperate to have decent mobile hardware. And then by selling or spinning it off, Apple will have billions more cash on hand... and they can then use that to re-invest in the Macintosh! Everyone is happy!