Could Apple Close iTunes?

With digital royalty rates due to rise, a threat by Apple to close iTunes emerges — but would they really do it?

The BBC has reported that an 18-month old threat from Apple that it might close iTunes has emerged just as digital music royalties are due to rise. And yes, they’re connected.

They digital music royalty rates could rise today from nine cents per track to 15 cents, as the Copyright Royalty Board meets to request the increase. And who would pay that increase? It would be the customer, the retailer or the record company – and you can pretty safely say it won’t be the record company.

What about the retailer? Apple has said it won’t increase its 99 cents a track price or absorb the rise. It opposed the increase in testimony to the Copyright Royalty Board at the Library of Congress in April last year.

Eddie Cue, Apple’s VP for iTunes, said then:

"If iTS (iTunes Store) were forced to absorb any increase in the mechanical royalty rates, the result would be to significantly increase the likelihood of the store operating at a financial loss – which is no alternative at all.

"Apple has repeatedly made clear that it is in this business to make money, and would most likely not continue to operate iTS if it were no longer possible to do so profitably."

Apple has an estimated 85% share of the digital music market, and is on track to sell 2.4 billion songs this year, although it’s facing stiff competition from other download services. Along with other members of the Digital Music Association, Apple has asked for the royalty increase to be limited to 4.8 cents a track.

However, David Israelite, president of the National Music Publishers’ Association, pointed out:

"Apple may want to sell songs cheaply to sell iPods. We don’t make a penny on the sale of an iPod."