Apple Threatens to Shut Down iTunes Store
October 1, 2008
Jobs & Co. have made their position known: raise the royalty fees they pay and iTunes will be in jeopardy. The Copyright Royalty Board, voting next week to determine the issue put forth by the National Music Publishers' Association to raise fees from 9 cents a track to 15, has plenty to consider.
Flexing their muscles in response to the request, VP of iTunes, Eddy Cue, wrote in statement:
Any increase in the royalty rate for DPDs (digital permanent downloads) will reduce aggregate revenues for copyright holders and stall or reverse the growth of lawful digital distribution channels for music. [The iTunes Store's] cost structure and margins are not flexible enough to enable the company to incur an increase in the mechanical royalty rate for DPDs without either (i) imposing a retail price hike that will reduce consumption and thereby reduce overall industry revenues or (ii) absorbing the cost input increase, eroding its margin and thereby jeopardizing its continued ability to remain in the business.Cue goes on to write that increasing iTunes' $.99 music download fee to cover the additional royalty fees would lead to fewer downloads and revenue, forcing the company to absorb the cost either way. "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." We'll keep you apprised of any further correspondence as we wait for the CRB to meet next week.