On Thursday, the Copyright Royalty Board (CRB) in Washington, D.C., is scheduled to vote on a request by the National Music Publishers Association to increase the royalties paid to its members for online music sales. Artists are currently paid a royalty of nine cents and want the CRB to increase it to 15 cents.

The move is opposed by the Recording Industry Association of America and the Digital Media Association, a trade group of online music retailers that includes AOL, Apple, MusicNet, Napster, RealNetworks and Yahoo.

But what really caught people's attention was Cue's suggestion that a royalty increase might cause Apple to shut down the iTunes Store.

If the CRB raises the royalty rates, Cue said, Apple would be faced with two options: Increase the retail cost of music tracks, which in turn would reduce sales; or absorb the cost of the royalty increase, which would erode the company's profit margin.

"Apple has repeatedly made clear," Cue warned, "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."

Most analysts think Apple is unlikely to summarily shut down the iTunes Store. The online store handles 85 percent of the world's digital-music sales, or 2.5 billion tracks. Moreover, the store plays a tremendously important role in driving sales of Apple's iconic music hardware, the iPod, and now its music/app devices, the iPhone and iPod Touch.

Nonetheless, the threat to pull the plug gives Apple a sizable bargaining chip. Whether it is one that the CRB thinks is valuable will be seen this week.

said by KrK :

This says it all:

"Apple has repeatedly made clear," Cue warned, "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."

Apple's implying that a royalty increase means they can't operate iTunes profitably, and would think about shuttering it. They are bluffing. Obviously, Apple could merely pass along the royalties and therefore the site would remain profitable. It's just they don't want to go over the pyschological price point of .99c. It's a marketing thing. Below $1 = cheap, above $1 = not so cheap in the public's mind.

So, yeah, passing costs along might slow sales down somewhat... but the key is it would still make money. As Apple said, they're in it to make money. Closing iTunes down would actually cost them a huge revenue stream, and therefore, they won't do it. It's just a bluff to make the CRB back down.

In my opinion artists should get MORE and the RIAA should get LESS. Of the .99 cents Apple charges, obviously .09 cents go to the artists.... How much goes to the RIAA and to Apple? That's the key here. I'm guessing Apple probably makes the smaller share, and the RIAA pockets the rest, but I don't know for sure.

Apple should tell the RIAA they need to reduce THEIR cut to allow the CRB increase to go through.

said by RadioDoc :

As for Apple's bluff, it is just that. Their iPod business would die almost immediately.

said by Vchat20 :

BINGO! And we know just how much of Apple's profit comes from the full line of iPods. I'd hazard a guess near 80% or more tbh. They'd be committing financial suicide if they really went through and killed off the iTunes music store.

said by RadioDoc :

No loss. There are much better sources out there for legal music. Amazon is kicking their asses.

As for Apple's bluff, it is just that. Their iPod business would die almost immediately.