Would Apple really shutter iTunes? Unlikely

Apple did indeed say that if it couldn't make a profit, it "most likely" will not continue to operate iTunes. You can find a copy of the statement here on page 4 (PDF).

Fortune magazine published a bombshell of a story on Tuesday by reporting that Apple once threatened to close iTunes if forced to pay more for music royalties. A more careful reading of the statement from an Apple executive shows that it was more of a veiled threat. Regardless, it's possible Apple could shut down iTunes.

But is it likely? No. Here's why:

Screen grab of the document Apple filed with Copyright Royalty Board

First, the comment was made by Eddy Cue, vice president in charge of Apple's iTunes Store, in a written statement to the Copyright Royalty Board sometime before April 2007. The CRB is a three-judge panel that determines rates for statutory copyright licenses. On Thursday, the CRB is supposed to rule on a proposal by the National Music Publishers' Association to make download stores pay more for the songs they sell. The publishers want an increase from 9 cents a track to 15 cents, a 66-percent jump.

Representatives from the NMPA could not be reached.

In his letter to the CRB, Cue said he had no doubt that raising music prices at iTunes would reduce the number of purchases, stifle customer growth, and shrink payments to artists. If iTunes were to absorb the increase in royalty rates, then the store would likely lose money and the company wasn't interested in that.

Here's the meat of his statement: "Apple has repeatedly made clear that it is in this business to make money, and most likely would not continue to operate (iTunes) if it were no longer possible to do so profitably."

Cue's comment that the company has "repeatedly made clear" is something else to look at closely. I can't find another example where Apple has said it will shut down iTunes. Two music industry sources told me that at no time have iTunes' representatives made such a statement to the record labels--not in negotiations, not in passing, never.

Still, there's no denying that Cue told the CRB that the company might shut down iTunes if forced to pay higher royalties. I have to question why it has taken 18 months for Cue's comments to come to light, and why they're popping up just two days before the board is scheduled to rule on a possible rate hike?

Maybe it's coincidence. Or maybe Apple is firing a public-relations shot across the bow of the music industry and CRB. When it comes down to mass appeal, Apple holds all the cards. If word gets out that music publishers are trying to stick it to consumers, and Apple is fighting to keep prices down on their behalf, well, there's liable to be public backlash against the record industry. If this thing follows the normal course, there would be calls for boycotts, protests, and so on.

The other possibility is that Apple could pull the plug on iTunes. But how likely is that? Would Apple CEO Steve Jobs leave iPod owners without anything to watch or listen to? In such a scenario, consumers would be predictably angry and direct much of it at the music industry. Then, I suspect, they would go out and buy music from Amazon.com or someone else.

Apple has sold more than 160 million iPods, and iTunes has sold over 5 billion songs. The store is now the country's largest music retailer. Apple isn't going to throw that away, and the music industry isn't going to risk losing its largest distributor.

Look for a deal to get done soon.

[Orion Blastar]

Looks like Apple will need my help. I've gotten too sick but I got ideas that might be able to help them about iTunes. They can outsource the iTunes store and software to another company in exchange for 10% of the profits. Then that company can negotiate lower royalty fees through tough contracts and things Apple is not willing to do. Might even have a way to make another operating system standard that Apple and Microsoft can agree to that runs classic software from older operating systems by licensing some open source software to make the new OS.

But I got really sick recently and cannot do it without help.

[dascha1]

Let's face it folks. The bigger it's gotten the worse the econonmy has gotten. Does Apple deny this? Where's the balance?

[bakedpatato]

I doubt it.
what else would they use to communicate down iPhones and iPod Touches( remember that Apple has a huge % of the US market ,and growth globally is good)
the ol' *AAs and such strike again!

[lkrupp]

There are lots of places to buy music online these days so who cares what Apple does. The simple fact that most online music is sold by the iTunes Music Store means nothing. It's not a monopoly, people have a choice, so let the chips fall where they may. This is a test of wills between two moneymaking enterprises. We'll see who blinks first. Frankly, though, I think Apple is spitting into the wind on this one. Prices always rise, greed trumps ideology every time.

[lmasanti]

quote:
"Music has helped Apple sell more than 150 million iPods, and iTunes has sold over 5 billion songs."

Just to put it clear, I think this is a kind of treaky phrase.
For me, here "Music" means "the sounds"... so, because I lilke to hear the sounds, I bought an iPod.

When I had my iPod... I wanted more "sounds" and bought them in the iTunes store.

The number of people that bought an iPod "because" iTunes would be small (except for the convenience). People love music then buy it.

Before iTunes, piracy did not pay anything to the authors, So, now that the authors receive money from the ITS, they want more. That's ok for me. Ask the labels to give them from their part!

[lmasanti]

quote:
"Then that company can negotiate lower royalty fees through tough contracts and things Apple is not willing to do."

Why do you not give us your ideas about "things Apple is not willing to do"... other than changing the $.99 price?

[MickBurke]

Ah the joy of a proprietary format controlled by a megalomaniacal fascist.

[skillingssucks]

What part of iTunes Plus don't you understand, monkey?

[SixVodkas]

You could spare yourself a lot of ridicule by dropping your aPpLE hAtORZ attitude and doing a little research.

Even grade schoolers know that AAC is an open format (more open than MP3), so unless you're willing to admit you're NOT as smart as a 5th grader, you might want to reevaluate your goofy post.

[Canok]

You are a f**king idiot, without iTunes you will be paying thru your a**e for all your music downloads.

[BNUX]

Are you talking about Steve Ballmer and Microsoft????

I love when people are anti-something because is just good and works well.

Just be anti-bad-software!!!

Bad comment MickBurke!

[jameskatt]

Apple should just call it a Royalty Tax.

Apple should price songs at 99-cents then talk on the additional amount as Royalty Tax. This tax is going to hit every distributor of music anyway. Rather than eat the amount, call it a tax and tack it on.

This way, consumers know who to blame for the higher cost of music.

[Waam]

My guess is, it stays at .99 cents a song, and somebody goes home pissed.

[AppleSuxLeo]

Who cares what Apple says...MyspaceMusic/Amazon MP3 is the new way of doing business for the record companies. Myspace lets you stream full-song playlists in high-quality , and the buy link goes straight to Amazon...NO DRM , higher quality , lower price. iTunes is past it`s prime . Amazon is actually allowed more music selection by the "big four" than iTunes , because they make more money than tight-wad Jobs wants the RIAA to have. Things have changed and iTunes is on it`s way out with it`s monopolistic system , rife with DRM. Myspace Music/Amazon MP3 is a win-win for the RIAA , AND the consumer.
It`s obvious Jobs is a liar due to the fact that music , esp. albums , are cheaper on Amazon , using a much higher encoding rate , and NO DRM , and Jobs says he can`t lower his prices or he won`t make a profit. That`s BS.The RIAA is now catering to Amazon/Myspace Music.
iTunes I hear from many is a bloated POS program anyway.Software is not Apple`s strength...but marketing is.
http://profile.myspace.com/index.cfm?fuseaction=music

[BNUX]

You are as credible as Steve Ballmer is when comment Apple or other concurrent products of Microsoft.... You make me lauft with your arguments, but I respect them. Maybe if where not so anti-apple could have more credibility.

Maybe you are Ballmer disguised. hahaha LOL :-D

[artistjoh]

The record company's continue to amaze me. As an artist I was always aware that they made profits by exploiting the difficulty in an artist connecting with an audience. In the internet era this no longer applies and their profits need to diminish to reflect the smaller value they offer artists. For them to claim they are collecting royalties for us is disingenius because we all know that royalties go to the copyright holders and that includes the record company.

We need more focus on Indie music and allow the blood sucking record industry to die a quick death for the greatest benefit to both artists and consumers.

[UnRumbero]

As a musician also.... I have to agree with artistjoh on this one. Everyone wants a piece of the pie. The record companies are going to do what they can to maintain their survivability in the industry, and with technology growing at such a rapid rate, I'm sure they see the writing on the wall. And it is saying "we don't really need you anymore". The indie artist is a very viable threat to the record companies and will play a very important role in their demise. Just look at the trend for the last 10 years and you'll see that they are in a downward spiral and trying to grab on to anything they can in order to make income. It's plain to see that the Artist will continue to make music because it's what he does. Can you say the same about the record companies? NOPE. However, you can say the same about the consumer..... they will continue to buy music.

[goodspeed8701]

i think its becos of zune. lol i know wat ur thinkin... well give me ur best shot wapple lovers

[Goodbye Helicopter]

what kind of half-baked journalistic joke is this?
College news paper?!
The Onion?

[beeber]

are you going to put up with this people? 99cents a song is too much and so is 9.99 for a cd . then add the drm and all the limits on what you can do with the music . too much money too many rules, the labels and apple are the big winners and we are the losers. fie to all of them!! i pay for my music but it's not anywhere near that amount, but if you wanna look, you can find much better deals than thisl.

[kaibelf]

ROFL since when is 99 cents too much for a song? You must be incredibly cheap. I recall not even 10 years ago when some chains were charging 16.99 for a 10-track CD with 1 good song and a load of filler, so I'm not sure what galaxy you are from.

[mjw149]

They could pull the plug on the Itunes music store (not itunes in its entirety of course) with little effect to their business. And piracy would go up, up, up! Amazon is nice, but ripping cds is easier and cheaper. Without itunes cards being gifted at the holidays, there would be a lot more piracy and new users who find piracy first won't go back on it, no matter how cheap Amazon is.

[ZetaZeta_]

what? amazon sells gift cards. amazon is 89 cents a song, have no DRM, and you can pay with paypal... Amazon has always been easier for me than iTunes. =/ what are you talking about??

also, piracy is easier and cheaper than using itunes at the moment.

[ZetaZeta_]

Alright, Amazon is 89-99 cents, but whatever, it's not more expensive at all. I've never felt like buying a physical CD was cheaper.

[G---man]

Given half a chance, the music company would stick it to consumers by raising the price per song and pocket the increase. They don't care about you or the artist. So without a distributor with the clout to push back on the greedy music label, you'd all be looking at $1.25, then $1.50, then $1.88 per song with the label only getting fatter. $0.99 is perfect - Unless you think that running something like the iTunes Store or Amazon Music Store, with its infrastructure, support, billing, equipment, networks, accounts, and everything else that goes into making it work cost the distributor nothing. How is distributor the enemy here? Some of you are whining that 99 cent is too much, but you expect the distributor to take a loss for you. When really big distributors like Apple and Amazon are your best advocates. Foolish in my opinion.

[Rawnchie14]

Awesome, people seeing the light about Apple's piles of crap.

Don't let iTripe bloatware, and its Apple-DRMed low quality music control you anymore. Amazon >>>>> iTunes

[GrandMasterFish]

You claim, in part, that iTunes will not be closed because it sold a whopping 5 billion songs. That certainly sounds impressive. But when you do the math, and take into consideration that Apple sold 160 million iPods, that comes out to less than 32 songs per iPod. That's not impressive.

And when you take into consideration that Apple currently only breaks even on iTunes, any increase in Apple's costs would give Apple little incentive to sell those 32 songs.

[Rawnchie14]

"But when you do the math, and take into consideration that Apple sold 160 million iPods, that comes out to less than 32 songs per iPod."

If only real life were as rigid and straightforward as you're making it seem! I hardly doubt that, the 160 million iPods were bought by 160 million people...

Oh wait, when you get a new iPod, you have to REBUY everything don't you? Maybe that's why iTunes is not impressive. Because they hose their customers.

[kaibelf]

I have about 900 songs on my iPhone right now, yet have magically only bought about.... 40 songs tracks and 2 full albums from iTunes over the past year. How can this be?

Oh wait, I have about 300 CDs at home that I also imported. It's foolhardy to assume that people who bought iPods had no music CDs at home. In fact, I've never heard of anyone buying any music player with absolutely NO collection existing. Therefore, I can only imagine how much I *would* have bought over the years if iTunes existed several years ago. And yes, most people to end up upgrading iPods. How many first-gens do you see around anymore? I've seen about... 2 in the past year.

[iPhoneUser]

Honestly, iTunes isn't that great anyway everyone. It's bloated software that has gotten exponentially slower since it's grown in size. Read - Apple has done essentially nothing to bolster their infrastructure and add bandwidth at a rate close to the growth in downloads its experienced. We as consumers will actually benefit if iTunes shuts down as all that traffic will head elsewhere like Amazon (or piracy ;) and those companies will be competing to be the new leader in digital downloads. I have an iPod, iPhone, iMac, appleTV, but the only reason I use iTunes is because it works on all of them. I'm guessing someone will develop an app that will supplant iTunes and will probably have a better interface. And the only reason I have that many Apple devices is because they all work together flawlessly and I enjoy downloading media. If iTunes dies, I'll just go to the next up-and-coming best site. If piracy becomes rampant once again, it would serve the recording industry right. How many Maseratis and estates do you all need anyway? What, $5 billion dollars in less than 10 years isn't enough growth for you greedy greedy j.ws.

[tappy727]

I'd like to see the royalty rate go up just to see if Apple would follow through with their threats. I don't buy my music online so I do have a stake either way.