October 2nd, 2008
Could royalty rate hike force Apple to reconsider variable pricing?
It’s the other battle between Hollywood and Silicon Valley and this one, more like a showdown between the record labels and Apple, could determine the future of music on the iTunes Store.
The Washington-based Copyright Royalty Board is expected to rule, by today, on a request by the National Music Publishers’ Association to increase the royalty rates for songwriters and publishers to 15 cents per track purchased from online music stores, up 66 percent from the current 9 cents per track.
If the board grants the request, then it comes down to who will pay it - Apple or the labels. For some time, the labels have long wanted to introduce variable pricing, charging more for new releases, for example. This would be the easy way to pass along the rate hike to consumers. But Apple has long argued that the appeal of the iTunes Music store - as an alternative to illegal music sharing sites - is the 99-cent pricing.
The labels are not interested in eating the rate hike, nor is Apple. Fortune has reported that the Apple has threatened to shut down the iTunes Music Store rather than take a financial loss or raise prices but others say that’s unlikely. I have to agree with them. It’s a big business to walk away from - Apple has an 85 percent market share in online music and, in April, passed Wal-Mart as the No. 1 music retailer in the U.S.
Still, negotiations could be in the air. Apple has budged a bit already - in recent months it started offering HBO content under a variable pricing plan and there’s even been a friendly back-and-forth over whether variable pricing led to NBC’s return to iTunes after the two parted ways last year.
Now may be the time to negotiate with Apple. Wired says the company is interested in expanding its offerings for ringtones and ringback tone as a means of sparking impulse sales over the iPhone’s 3G network. But to do that, Apple will have to play nice with the record labels.
All of this, of course, could be a moot point if the Copyright Royalty Board declines the request for the rate hike today. Regardless of what happens at the board meeting in Washington, it’s a safe bet that the issue of variable pricing on iTunes won’t go away anytime soon.
Sam Diaz is a senior editor at ZDNet. See his full profile and disclosure of his industry affiliations.
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