In the last year, record companies saw their CD sales fall by 20% to $7.4 Billion while Apple and its online service iTunes is estimated to sell 2.4 billion songs this year giving it about 85% of the online market. Given that it forks over 70 cents of every dollar it collects per song to the record companies Apple's profit margin is incredibly slim, but according to iTunes Vice President Eddy Cue in a recent CNN Money interview, Apple doesn't believe that the market will bear an increase of the price per song - regardless of what the recording industry might think.
However, depending on what happens this coming Thursday when the Copyright Royalty Board sets the royalty rates for the next five years - the first possible increase since the online explosion - Apple may have no choice.
The record industry is asking that the fixed per song payment be scraped in favor of 8% of the wholesalers revenues. In contrast, the Digital Media Association, who represent online music services like Apple, is seeking to get an even lower rate of 4.8 cents per song; or 6% of revenues.
"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," Cue wrote. "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."
Apple close iTunes?
Ya .. right .. and if you believe that, I have some excellent bridges for sale. They would increase the price, consumers would bitch for a little while and then it would be back to business as usual.
Have you noticed though who isn't being included in this decision making process of royalties? That's right - the musicians. Instead they will have to once more depend on whatever the record labels and trade associations decide to dole out after they have taken their cut of whatever agreements are reached. In a business that is rife with cooked books and missing royalty payments to the musicians the idea that they would see any of the possible increase in income is farcical.
Then there is us - the fans, the listeners, the purchasers.
Guess what?