Will Apple really shut down iTunes?

[2 October 2008]

By Jason Gross

That’s what they want us to believe, according to this CNN article.  Or more precisely, they’re using this threat to convince the Copyright Royalty Board not to raise the amount of money publishers can collect for songs, increasing the price from 9 cents to 15 cents a song (aka 66%).  Apple argues that they can’t keep songs at 99 cents a pop at that new rate and would have to close iTunes.  Publishers are unmoved by this threat but considering that Apple has 85% of the digital music market, there should be some cause for concern.  If Apple’s gone, what will happen to all their customers?  They’re not going to automatically just migrate over to other major-sanctioned services (i.e. Napster, Amazon, Rhapsody) and will more likely go to the free P2P services.  That will mean a lot less money for the publishers, the labels and of course the artists themselves.  So while the publishers would get more money for each song, the total amount will be MUCH less if Apple follows through on their threat.

But would Apple really do that?  As it is, the company makes pennies (literally) for each iTune song sold, with the bulk of their profits coming from iPods instead.  If they were in business with iTunes alone, they’d be losing a lot of money so this just means they’ll be losing a lot more.  But shutting off iTunes would give people less incentive to buy iPods.  Unless Apple is gambling that people will stick with their neat little device with or without iTunes, then this is a ploy to get the Copyright Board to back down and not implement the increase and see if their threat will make them blink.

Then again, Soundexchange was negotiating royalty rates for streaming services (Net and satellite services) recently and thought it more important to raise the rate as they please and not care about how many companies (i.e. Pandora) would be put out of business as a result of that.  Luckily, the recent Webcaster Settlement Act (which passed Congress and is going to Bush) gives the ‘casters the chance to renegotiate the rates.  If only the CPB had enough sense to do the same.

OCTOBER 3rd follow-up: According to this Wired story, the Board decided to keep the price the same so iTunes lives.  One of the publishing company heads bragged there that he didn’t think Jobs and friends really had the guts to kill off iTunes if an increase was agreed upon.  Such chutzpah…

Published at: http://www.popmatters.com/pm/post/will-apple-really-shut-down-itunes/