Tech bloggers are buzzing over Apple’s threat to shutter iTunes if three US judges side with music publishers and vote to raise royalty fees on digital downloads on Thursday.
You can read all about what the pending Copyright Royalty Board decision means for the online music industry here. In the meantime, here are three reasons that Apple’s threat – levelled in public testimony before the CRB last year – is likely nothing more than bluster:
1. Apple’s market power means it still has an advantage in pricing talks. In the world of digital music, Apple is king. With 85 per cent market share of paid digital downloads in the US, Apple may be able to force the music industry to absorb most, if not all, of any royalty increase. By driving a hard bargain, Apple should be able to minimise any impact to iTunes profits in the event that royalties go up.
2. Apple could appeal to a higher power to have an unfavourable CRB decision overruled. That’s what happened with internet radio after the CRB decided to raise royalties for webcasting last year. The decision was condemned by internet companies like Yahoo and AOL, who said the royalty hikes would damage the business model for internet radio. On Wednesday, Bloomberg reported that the US Congress had passed legislation that would let internet groups and music labels negotiate a lower rate – an interesting example of a royalty increase not sticking in the long run.
3. Apple has already begun to embrace variable pricing on the iTunes store. In recent months, Apple has moved to embrace variable pricing for television shows and other video content on iTunes – first with Time Warner’s shows from HBO, and now with NBC Universal. Steve Jobs would clearly prefer for iTunes to hold onto its 99 cents per song price model, but if all else fails, a move to variable pricing would not be without precedent.
As an aside, astute readers will notice that whoever redacted the public copy of Eddy Cue’s testimony before the CRB last year didn’t do a very good job of blacking some of the secret bits out. Did you know that, at the time of Mr Cue’s testimony in early 2007, iTunes had been growing at a rate of more than 1m users every other month since 2005?Or that about 40 per cent of the tracks sold on iTunes in early 2007 were sold as part of albums (implying that 60 per cent were sold one at a time – a low-margin proposition, given credit card fees, as Apple explains in its testimony)? Well, you do now!
