Apple Threatens to Close the iTunes Store

On Thursday, October 2, the Copyright Royalty Board, which oversees licenses and fee issues, will take up a proposal by the National Music Publishers’ Association to raise the per-track royalty for online music sales from 9 cents to 15 cents.

Courtesy of Apple

Apple is opposed to the increase because it believes the increase will disrupt online music sales, which for Apple is a very low-profit business. Apple VP Eddy Cue, who oversees the iTunes service, has said that if the proposal goes through “the results would be to significantly increase the likelihood of the store operating at a financial loss – which is no alternative at all.” Cue went on to say that the iTunes service “most likely would not continue to operate if it were no longer possible to do so profitably.”

I can understand Apple’s concern. The iTunes music service is indeed a low-profit venture. Out of every dollar of sales, 70 cents goes to the record companies. The remaining 30 cents goes toward Apple’s operating expenses, marketing, and profit, if any. Apple’s main concern is that if royalties are raised, the six cent increase would be taken from the 30 cents that it gets, rather than the 70 cents the record companies get, which Apple is under contract to provide.

Even allowing for these concerns, Eddy Cue seems to want to take his ball and go home. The idea of Apple closing the iTunes music store over this is difficult to swallow, no matter how Cue wants to spin it. Apple knows, and so do we, that the iTunes Store’s main function is to provide a seamless conduit for getting purchased music onto iPods. Take away the iTunes Store and what advantage does the iPod hold for most users?

I don’t believe Apple will risk the iPod just to say “neener neener neener” to the record industry.