Apple threatens to shut down iTunes over royalties increase

In what is sure to be another chapter in the Miltonian clash between online music retailers and the folks who supply their product, Apple has threatened to shut down its online music store over the National Association of Music Publisher's requested six-cent hike in digital royalties fees, the first increase since the rate was set in 1996. The Copyright Royalty Board is set to pass judgment on the issue this week and Apple is likewise poised to close shop and bring 85 percent of online music sales crashing down around it.

Apple's reasoning for the threats? Its store operates on thin margins as is, and it likes making money. "If [iTunes] was forced to absorb any increase in the royalty rate, 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 it clear that it is in this business to make money, and most likely would not continue to operate [iTunes] if it were no longer possible to do so profitably," writes iTunes store veep Eddy Cue.

Steve Jobs' empire currently pays artists and labels 65-70 cents for each song sold in the iTunes music store, nine cents of which goes to royalties costs. An increase to 15 cents for royalties would make the music store unprofitable at the 99-cents-per-song price, Apple claims. The company could tack the extra six cents onto the price, but is hesitant to alter what it believes is a sweet spot for song pricing.

It's hardly the first time Apple has been pressured to change up its pricing structure; labels force iTunes to DRM-encode tracks that come without copyright protection on other online music stores like Amazon.com.

The Copyright Royalty Board will make their first ever statement on digital publishing royalties this week, so stay tuned as the drama unfolds. It's unlikely that Jobs & Co. will actually go through with the threat, but it's a reminder that Apple is big enough to throw its weight around. If Jobs does indeed shut down the Internet's biggest music store, we'll be there to usher you through the grim, post-iTunes world.

Related links:
News: iTunes unveils top-selling albums, singles of '07
Apple.com/iTunes
Wired: Want better music? Don't stiff the songwriters

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