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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.

 
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