Chicago (IL) - A new chapter in the standoff between Apple and the music industry has begun: Content owners and publishers are pushing for higher royalties that are paid to composers and songwriters and ask Apple to eat the cost itself or pass them on to music buyers. Apple, however, says it would rather close iTunes than raise songs above the current rate.

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The music industry could score a small but important victory against Apple and its  iTunes Store (iTS), if the Copyright Royalty Board (CRB) confirms a request by the National Music Publishers' Association (NMPA) to increase the royalties paid to composers and songwriters from 9 to 15 cents per song. Whether approved or not, the forthcoming ruling will, for the first time, set royalty rates for digital sales over the next five years, following a 1997 ruling that had defined royalties for physical music sales until 2007.


Apple's reaction

Not surprisingly, Apple does not agree with the request. "Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate the iTunes music store if it were no longer possible to do so profitably," wrote iTunes Store (iTS) vice president Eddy Cue in his statement to the CBR.

It is somewhat apparent that music labels are pushing for the increase in royalty rates since they know Apple really has only two choices - eat the increase itself or pass it on to consumers. Both scenarios are unlikely, especially the latter as it would raise the per-song pricing above psychologically important sub-$1 barrier. "If the iTunes Store 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," wrote Cue.

According an article published by Forbes, music labels demand that the CBR drops the fixed royalty model in favor of the 8% commission of wholesale revenues, or 5.6 cents, to artists. Apple and other online music stores propose a 6% commission, or 4.2 cents, much to the dismay of artists.

For each track sold, Apple pays about 70 cents to a record label which then hands 9 cents to artists. Apple and keeps the remaining 20 cents to itself. Apple said that its share covers infrastructure costs (servers, bandwidth, payment processing fees) and marketing. In the early days of the iTS, the company used to claim that the store barely breaks even and was simply a marketing tool to promote iPod sales. This isn't necessarily true today. The five-year old store currently has 65 million active accounts with credit cards and currently owns 85% of the digital music market in the U.S. Song sales zoomed past the five billion mark as of this July and Piper Jaffray estimates that the iTS will shift 2.4 billion songs this year alone.

In the June quarter, Apple's music-related activities raked in $819 million and huge chunk of this revenue comes from iTS sales. We should not forget the fact that the digital-only iTunes Store has become the largest music retailer in any format and pushed Wal-Mart down to the second rank. It is now the largest online content store in the world and no-one has succeeded in breaking its dominance so far.


Artists? It's about the infrastructure.

Common sense suggests that this new argument is another disagreement between two divas that are in a love-hate relationship. While the music industry relies on iTunes as a major revenue source, it does not necessarily like iTunes’ growing dominance. History shows that music labels play the “poor artist card”, as in this case, when they see their traditional role as the middleman between artists and stores being threatened. It happened when Napster (and then illegal downloads) grew too large and it happens now (with legal downloads) again. If you put yourself in the shoes of a music label executive, it isn’t particularly difficult to imagine that Apple might expand its role to become a music publisher one day, signing exclusive contracts with artists that will remove publishers from the entire infrastructure.

We should not be too surprised if music labels come up with more creative ways to reduce the market share of Apple’s iTunes Store - and drive them to other music service for a more balanced market, in which music labels would have much greater control overall. The problem with iTunes, however, is that it is well-funded and that it can’t be sued that easily.

they get 70%...

Oct 01, 2008 12:37     

...and are still whining that the artists are broke? We need to create a business model that gets rid of these jerkoffs.
Scott report abuse vote down vote up Votes: +11

Some other thoughts...

Oct 01, 2008 12:40     

...the point of a label was marketing, and we really do not need them, anymore, do we? Perhaps being a musical act needs to be more like starting a business and less like winning the lottery, since mass media is now available to everyone with the internet. Plenty of well known acts are doing it this way, now. Label Shmabel.
Scott report abuse vote down vote up Votes: +0

Wow - Greed at it's finest

Oct 01, 2008 12:41     

Thats so generous of the record labels - wanting to help the artists, the true talent, make a little more, yet still leaving them with the smallest chunk of the pie! But of course, the labels don't want to give up any of their 70% portion, it has to be bled from the consumer or the retailer instead, It is not pirates who are sinking the ship, but the recording industry themselves. Such disgusting greed. I will continue to download my music and support the smaller artists who really need it privately.

Bainne report abuse vote down vote up Votes: +12

The more I read about this...

Oct 01, 2008 13:05     

...the more it pisses me off. What are these people but loan sharks? They merely finance production and touring, and the artists owe back EVERY PENNY THEY SPEND. Not many people know this, but the cost of the marketing, the production work, touring, crew, equipment rental... all of it is totaled and deducted from the money the artists ultimately make. It's not as if the labels actually spend a penny of their own money on you, you are ultimately responsible for the entire cost of doing business on your five album deal they give you. I know a top forty musician, personally, who is on his fourth album, three of which went multiplatinum, to the tune of a decade of a grueling 260 day a year worldwide touring schedule, around which they are supposed to write, record new material, film videos, show up for industry events and award shows... and somehow have a life outside of that. You live, essentially, on a bus. You never see your kids, your wife, your friends. The reality of being a rockstar is not nearly as cool as the fantasy of it- it's mostly holiday inns, crappy food, not enough sleep, and too many intoxicants to stave off the almost total boredom created by constant travel. This is why they write songs about how much it sucks... because it really does. So after these poor guys pay off these millions of dollars type of obligations, they get to keep a mere nine cents on a download. Nice. Apple and ilk: you are complete dickheads for wanting to reduce this to under five cents a track... Labels: I consider it hilarious that you cling to your useless media (I'll make my own, thanks) and outdated business models... Your loan shark like behavior was barely tolerable when you were the only way to reach the masses, but all that has changed. You are morons for not being the iTunes, and since you couldnt bring that to the table, my opinion is good riddance. I shall continue to use p2p for certain bands simply to deny you a profit margin, you useless waste of a soul. I also shall continue to support local music and bands that try and break out of this mold with my wallet. Artists: Are you signed with a label? Let your contract expire. Are you hunting a contract? Dont. Invest in yourself, your music, online. Make the deals your promoters used to make, not a negotiator at heart? Then employ one. I am actually personally a part of this group, and we could effect change faster than consumers by refusing these deals, when offered. I watched Virgin offer a deal to an up and coming band in Northern Virginia, and they said no, your deal, it BLOWS. We need to remember a label could not exist without us, we should be using this power. Without us, there is no label, no iTunes, no Sony Music, no Universal (the worst of the bunch, IMHO). As consumers, we get to choose who wins. Let's put these label bastards out of business, shall we? A direct to consumer model for music is what is needed... we need merely support the company that puts forth the proper effort and supports the artists directly.

Scott report abuse vote down vote up Votes: +14

LOL :) Apple threatens to close iTunes

Oct 01, 2008 13:09     

I really want to see this happen :)
pear report abuse vote down vote up Votes: +2

I hate the greed if the industry

Oct 01, 2008 13:12     

why should we or even iTunes pay that extra 6 cents why doesnt it come out of the 70 cents that the record labels are receiving. the first 9 cents already comes from there. the rest should come from there. It is no wonder people hate paying for the stuff and will activly search out ways to get it free. i believe that the artists should be paid for thier work but the labelsa re just greedy and want to suck every dime they can out of people.

William report abuse vote down vote up Votes: +7

Record Labels are just legalized loan sharks

Oct 01, 2008 13:29     

Any fledging artist knows that a record company is nothing more than a bank which loans you money to put out a record and takes a 70% cut if your record takes off. If it weren't for the fact that most music artists are poor, dumb and high most of the time, record company's wouldn't exist.
anonymous report abuse vote down vote up Votes: +6

Since when have labels given a F*ck about artists?

Oct 01, 2008 14:15     

Since when have record labels given a f*ck about their artists royalties?!! "Please Apple, can we hit you up for more royalties we're to cheap to fork out to our contractees ourselves?" " "We believe we shouldn't pay our artists at all (if we can avoid it) and thereby, petulantly demand you take responsibility for our ethical vacuum." What a bunch of whining hypocrites.
Trunk report abuse vote down vote up Votes: +5

oh please yes!!

Oct 01, 2008 14:28     

I hope Apple closes Itunes! They would close their DRM servers and viola yet another DRM failure to put on the list. Dont get me wrong, i like that people like to buy music, but after their music has become worthless maybe they will think before they buy stuff next time and not get ****ed by control hungry dinosaurs. Then again Apple could help defeat the Dinosaurs known as Record labels thats been screwing artists for a very long time, so i hope Apple can figgure this one out and be able to put as mutch HURT to record labels as possible without closing its store and ****ing over consumers in the process. Theres also a chance Apple could be the knight in shining armor and start with movies aswell, and hopefully fight for consumers. Thats not very likely but one can dream.. To top it off, i hate apple i realy do im a pure apple hater, and i hate microsoft too for that matter. But i do see some potential for a future better for consumers where they are not DMR'ed or i see a future were Apple kills off the dinosaur labels and brings cheap music anyone can afford that also makes alot of money for the artists in the process! But i realy do hope for another DRM scandal, i cant stand draconian DRM. Who knows they might kill Itunes to make the labels hurt and then restart it, with a even better service with HD movies and everything completely DRM free and cheap without any dinosaur sludges! ;)

... report abuse vote down vote up Votes: +2

Hey kids

Oct 01, 2008 14:31     

10% is really good. In the old days they got maybe 3%. There's a lot of other people involved other than band members to make a succesful artist. You simply have no choice and can't make it on your own. Everybody gets their share and that's only fair. Only superbands that everybody knows can have their own record labels and still make profit. Besides, most money comes from gigs, not selling records.

Nut report abuse vote down vote up Votes: -5

why not start out a new model.

Oct 01, 2008 15:07     

Since itune have the lion share of online music, they can promote their own artist...give them 10-20% of profit while keep 60% of the profit and do promosion... and then the comsumer get 20% discount on the misic. that way...apple make tons more money, artist makes tons more money and willing to join apple ....and the record labels can go to hell with nothing. We don't need CD. Every one already has an ipod or mp3 player.

andy report abuse vote down vote up Votes: +1

They have an opportunity to do good

Oct 01, 2008 15:35     

You know, as much as Apple has ridiculous profit margins and deplorable hazardous materials practices, if they were to kill record companies once and for all and if they had hearts, they could decrease the price of music, increase artist revenue, AND get more profit. Everybody would win. And if Google killed cell phone companies, holy hell...
You report abuse vote down vote up Votes: +1

Money sucking vampires

Oct 01, 2008 16:15     

thats why there are so many illegal downloads.....dont blame the pirates, blame yourself
they suck report abuse vote down vote up Votes: +2

Um, 70 20=99?

Oct 01, 2008 17:15     

Or maybe you meant 70 cents for the greedy labels, 20 cents for iTunes and 9 cents for the real talent? Did I read wrong? It is a shame that artists get so little.
Magius report abuse vote down vote up Votes: +3

"pays about 70 cents to a record label... hands 9 cents to artists"

Oct 01, 2008 18:11     

There's the damn problem - the label offers only 13% to the talent...
hank report abuse vote down vote up Votes: +0

9 Cents to the Artists?

Oct 01, 2008 18:18     

"Apple pays about 70 cents to a record label which then hands 9 cents to artists." I don't think I'm the only one that sees the problem right there. Under what reality distortion field is it appropriate to accept 70 cents for a song sale and then dribble 9 cents to the humans who made the song happen in the first place???
EricTN report abuse vote down vote up Votes: +4

Hard Copy FTW!

Oct 02, 2008 01:33     

case and point. I think I've purchased maybe 2 songs from the itunes store. How many of these "online" stores have closed their doors now? 2... 3??? And viola, oh, i'm sorry... you're bought and paid for music is no longer usable or simply locked to the current device that its on unless you take measures to bypass the encryption. No thank you, i'll buy my hard copy and rip it myself thank you very much... and if i'm that impatient, i'll download it! Illegally! so what?! I'm not sharing it myself and i turned around and bought a copy of it! Screw the IRAA. ... as a side note i don't support downloading music illegally at all, notice i said that i turn around and buy the stuff. Most people don't realize that this stuff is what puts the food on the table for the artists. I have a couple close friends in this industry and i see how hard it is for them. Thats why i buy my cds of their bands straight from them so they get the cash. That said, i don't think there is nething wrong with downloading a Movie or a CD that you have or will in short order have a legally bought and paid for copy. Infact, as soon as holly wood and the music industry starts providing multi format options all in one package i think a lot of our problems will be solved. wow i got winded there...

wsp_epsilon report abuse vote down vote up Votes: +0

I tell you what happends if ITUNE closed

Oct 02, 2008 18:48     

1st... file sharing becomes more popular.. if it isnt already.. 2nd... microsucks takes Sand Dunes to another level. 3. Makes no difference for me.. i cant stand the current business model nor did i back in 99'... its to late for the most of us..
lol report abuse vote down vote up Votes: -1

itunes record labels music pirates are ALL greedy

Oct 03, 2008 01:17     

itunes record labels music pirates are ALL greedy. Now think about it, while most products have gone up in price in the last 5 years, ppl think music should stay the same. Next time you get a pay rise, think if musicians, music studios and low level employees at record labels might deserve one too.
Jay report abuse vote down vote up Votes: +1

Apple should lower ipod mark up....

Oct 03, 2008 01:22     

Apple should lower ipod mark up if they really care about consumers. The real reason that Apple doesnt want to put up the price of songs is not because Apple cares about consumers, its because they want to keep the value their for their ipod. The ipod has a way bigger mark up than what music does.
Jay report abuse vote down vote up Votes: +0

re: why not start out a new model.

Oct 03, 2008 02:15     

Any I like your idea. But lets not forget that with the that the labels pay for recording and marketing. Are you suggesting that itunes pays for that or that the artist pay for that with your business model?
Jay report abuse vote down vote up Votes: +0

Don't shut iTunes down, Just kick all the signed bands out.

Oct 06, 2008 20:38     

Marketing is rapidly becoming irrelevant. The Internet has a viral nature. We no longer need people to tell us what we want. iTunes should let anyone who wants to pay a small fee to put their stuff up. If customers listen to the music, the artist gets paid. The only useful function provided by the labels is stopping people from plagiarizing music. Apple would need to find some way to prove the band selling the music is the band that owns the music. With any luck, the labels could no longer be relevant by this time next year.

Ralf The Dog report abuse vote down vote up Votes: +1