CRB Keeps Music Playing with Unchanged Royalties (NewsFactor)
Frederick Lane, newsfactor.com 22 minutes ago
In an eagerly awaited decision, the Copyright Royalty Board announced Thursday that it will not increase the royalties paid by online music stores to members of the National Music Publisher's Association. The decision to keep the royalty rate at nine cents per song is the first ruling by the CRB on digital-music downloads.
The controversy caused considerable controversy online, particularly in the wake of comments by Apple representatives suggesting the company would no longer be able to profitably operate its popular iTunes Store.
The NMPA had asked the CRB to raise the royalty rate from nine to 15 cents, a 66 percent increase. Apple protested, arguing that due to massive infrastructure costs, the profit margins on each iTunes music sale are too slim to absorb the proposed increase.
In fact, Apple has repeatedly pushed to have the nine-cent royalty reduced, saying it is unnecessarily high.
No Margin for Error
Susan Kevorkian, the program director, consumer markets, for IDC, agreed with Apple's assessment of the economics of the online music business. "Margins on a la carte downloads are extremely tight," Kevorkian said, "and Apple has been able to run the iTunes Store profitably due to its high volume."
How much profit is a little difficult to ascertain, but it's almost certainly a respectable amount. According to industry estimates, Apple will sell roughly 2.5 billion tracks of music this year.
Those estimates do not include the synergistic relationship that the iTunes Store has with Apple's enormously popular (and profitable) line of iPod devices and its iPhone.
Different Pricing Model
Kevorkian said that even if the CRB had ruled in favor of the royalty increase, she didn't believe Apple would shut down iTunes. Instead, she said, the company would finally have considered the idea of different pricing models for the music it sells.
"If push comes to shove and Apple is faced with losing money on iTunes due to a rate increase," Kevorkian said, "Apple has the option to raise its per-track and per-album prices, and its competitors face similar choices."
Kevorkian pointed out that Apple has developed a brand identity for iTunes that is based on 99-cent downloads and $9.99 albums (although DRM-free tracks are slightly more expensive). As a result, she said, Apple would have to think about a strategy change for the iTunes Store.
"If raising prices becomes necessary, Apple could consider migrating to a tiered pricing strategy, which the music industry is pressuring it to do," Kevorkian concluded. "IDC believes that the online music market is now mature enough that such a change would be tolerated by consumers."
Thanks to the CRB's decision, however, Apple will not have to consider that possibility in the immediate future.