Apple threatens iTunes music store closure; Apple receives ultimatum from Norway over DRM

Update, 10/02: The Copyright Royalty Board has decided not to change the royalty rate after all.

The National Music Publishers' association has requested that the royalty rate they receive on songs from the iTunes Music Store to be raised from 9 cents to 15 cents per track. The Copyright Royalty Board in Washington, D.C., which sets royalty rates on statutory licenses, is expected to issue a ruling Thursday. Apple feels that the music market is not mature enough to raise prices beyond the 99 cent price point—that doing so would inevitably lead to declines in sales and profits. Rather than absorb the increase or raise prices to compensate, they say, they might have to close the iTunes music store. In a statement submitted to the board last year, iTunes vice president Eddy Cue wrote:
If the [iTunes music 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. 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.
Many are justifiably skeptical of Apple's threat, given that the iTunes music store is one of the biggest inducements to consumers to buy an iPod—Apple's most popular product ever. It seems doubtful that Apple would rather shutter the most popular retail music outlet in the world than work out some kind of compromise. With iPod sales numbering literally into the millions, that is a great deal of money to leave on the table. But certainly if the unthinkable happened and the iTunes Music Store did close its doors, its overwhelming popularity means that it would have the potential to serve as an object lesson in the drawbacks of Digital Rights Management in ways that Wal-Mart, Microsoft, Yahoo, and Google's music or video store closures never could. Although iTunes does not have to connect to the servers to play each song, new computers or devices do have to be authenticated in order to play already-prchased music on them. If shuttering the store also meant shutting down authentication, it might not take long for millions of consumers to get very angry.

Norway: My Way, or the Highway

Speaking of iTunes and DRM, Norway has given Apple an ultimatum: allow iTunes-sold music to be played on non-iPod devices by November, or face sanctions.

Because iTunes sells most of its tracks locked with its proprietary FairPlay Digital Rights Management software, which it has not licensed to any other hardware manufacturers, the only devices that can play purchased iTunes music (outside of PCs running iTunes) are iPods. This is in violation of Norweigian law, in which consumers are allowed to play digital media they purchase on any device.

It is uncertain what sanctions Apple will face, or how they might best be able to comply. But whatever Norway and Apple do, the consequences will be felt beyond the land of the fjords—a number of other European countries are supportive of Norway’s actions, and will be keeping an eye on the outcome.

About Chris Meadows (4151 Articles)
TeleRead Editor Chris Meadows has been writing for us--except for a brief interruption--since 2006. Son of two librarians, he has worked on a third-party help line for Best Buy and holds degrees in computer science and communications. He clearly personifies TeleRead's motto: "For geeks who love books--and book-lovers who love gadgets." Chris lives in Indianapolis and is active in the gamer community.

4 Comments on Apple threatens iTunes music store closure; Apple receives ultimatum from Norway over DRM

  1. Woohoo go Norway!

    Apple are totally bluffing. Close the iTunes Music Store? Are you serious? Only a fool would do that.

    They’ll keep it as a loss leader in worst case scenario for them, since it gives them so many opportunities.

  2. Let them close it. Not that I believe it would ever happen, but there sre enough DRM-free providers to fill the gap, and software exists to manage Ipods without Itunes.

    Of course they could raise prices behind the guise of a quality improvement by raising the bit-rate quality of the songs to 256kbps…

  3. Even though I own an iPod Touch I’ve never purchased a track from the iTunes store. All my music is legal either purchased via DRM free sources (Thanks, Amazon!) or ripped from my personal CDs.

    Call iTunes bluff, the store is a huge moneymaker and they won’t close it.

  4. Garson O'Toole // October 1, 2008 at 11:10 am //

    The article at CNET expresses skepticism about whether “Apple could pull the plug on iTunes.” To show why they think iTunes will remain open they pose the rhetorical question “Would Apple CEO Steve Jobs leave iPod owners without anything to watch or listen to?” But this question reveals a serious misunderstanding about the way iPods are actually used. Only a small fraction of the music on iPods is from iTunes.

    A Jupiter Research Report found that on average “only 5% of the music on an iPod will be bought from online music stores. The rest will be from CDs the owner of an MP3 player already has or tracks they have downloaded from file-sharing sites”, as reported in a 2006 BBC article titled “iPod fans ‘shunning iTunes store’” . So Rita’s comment above about the contents of her iPod reflects the behavior of many consumers.

    In response to “Norway’s Consumer Council” Apple could stop selling music with DRM and continue selling DRM-free music in Norway. Alternatively they could close down iTunes completely in Norway. Most of their revenue comes from hardware such as iPods and iPhones. Steve Jobs has claimed in the past that he wants to sell DRM-free music on iTunes but has not been able to get tracks from all the major music companies. For example in 2007 he said:

    For Europeans, two and a half of the big four music companies are located right in their backyard. The largest, Universal, is 100% owned by Vivendi, a French company. EMI is a British company, and Sony BMG is 50% owned by Bertelsmann, a German company. Convincing them to license their music to Apple and others DRM-free will create a truly interoperable music marketplace. Apple will embrace this wholeheartedly.”

    But the situation has changed since 2007. The four “major” record labels now sell DRM-free music MP3s at stores like Amazon. So why doesn’t iTunes offer the same music DRM-free? The excerpt below from a New York Times article suggests that the record labels may not be offering DRM-free music to Apple:

    “The major music companies feel that Apple’s foot is on their necks, and they would like to get it off,” said Bill Rosenblatt, president of GiantSteps Media Technology Strategies, a consulting firm. “They are looking to destabilize Apple’s dominant share, and they see Amazon as their best shot.” …

    Nevertheless, the development is not necessarily a bad one for Apple, said Richard Greenfield, an analyst at Pali Capital. “My guess is that Apple doesn’t care,” he said. “The reality is, everyone will now start downloading their songs more cheaply someplace else and using them on their iPods.”

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