Wednesday, October 01, 2008

Apple threaten to shutter iTunes Music Store

It's a negotiating position, certainly: Apple have made a threat that they might axe their music store altogether if the US Copyright Royalty Board increases the price payable per track from nine cents to fifteen cents.

PaidContent's Joseph Weisenthal reckons Apple is bluffing:

It's understandable that Apple would want to fight this—based on analyst Gene Muster's estimated 2.5 billion tracks sold in the coming year, the hike would cost it $144 million. But the notion that it would willingly give up its dominant position in online music retailing, as well as a key ingredient in what makes the iPod/iPhone franchise so successful, is basically implausible. Perhaps iTunes could go on, sans-music, but then its name would be absurd. If the worse came to worst, and the royalty rate were hiked and Apple could not stomach the $144 million hit to profit, then the company could always raise the cost of music. Apple argues that this would lower music sales—thus obviating any gain to the publisher—but for Apple, it would at least preserve the complementary store and device, which has brought the company such incredible fortune.

But Weisenthal forgets the important detail about iPods: most songs on iPods don't come from the iTunes Music Store. Sure, it makes it easy to get tracks onto the iPod, but then iTunes makes it just as easy to pull tracks off CDs and from elsewhere.

And besides, there's nothing to stop Apple hitching another retailer's back end to the iTunes front end, charge them (Amazon? We7?) a rent for the eyeballs, and sit back comfortably knowing they don't have to remain in the business of selling music when what they really want to do is sell iPods.

Given how uppity the major labels can be, and how keen they are to try and prove their relevancy in a world ten years after they should have vanished, it's unthinkable that Apple don't already have at least a fully-costed Plan B in place in case they needed to drop the store. Closure might not be the hand they want to play, but that doesn't mean it's not cards they're holding.


Andrew said...

If Apple close the iTunes Music Store, doesn't the iPod's business model become predominantly based on copyright violation, instantly rendering iPods illegal under the Limewire/Kazaa precedent?

Jack said...

iTunes won't close. It's a pathetic PR stunt by Apple to help their bargaining position. They make people think that iTunes might close so the punters put pressure on the Copyright Royalty Board to not put up the amount they want for each sale. It's utterly disgraceful marketing and, sadly, it'll work.

And, on the off chance it doesn't work, people are more likely to feel sympathy towards Apple when they put prices up.

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