October 18, 2005 4:00 AM PDT
Apple steps up iPod 'tax' push
For some months, the company has been seeking royalties from accessory makers that want to display a "Made for iPod" logo on their products. The program, which one analyst has likened to an "iPod tax," applies to devices that connect electrically to the player and not to cosmetic things like cases.
Now Apple has made the program a requirement for manufacturers who want their gadgets to plug into the "dock connector" at the bottom of the music player, Senior Vice President Phil Schiller confirmed to CNET News.com last week.
Apple is telling iPod accessory providers they must pay it royalties if they intend to make devices that connect electrically to the music player.
The move could generate millions of additional dollars for Apple, but it also may cause grumbling among those companies that have to play along.
"Yes, the electrical connection has specifications around that and licensing around that, and the way you get that assistance and information and licensing is through the 'Made for iPod' program," Schiller said in an interview. He did not say when Apple made the program mandatory.
It's not clear what means Apple might employ if companies don't go along, as Apple declined to comment on that. Though many manufacturers have signed up for the program so far, some have complained in private that it's too high a price. But for Apple, the move is a chance to profit further from the empire it has built on the iPod, given that the market for such add-ons is estimated in the hundreds of millions of dollars per year.
According to a source familiar with the program, Apple is getting a royalty on the order of 10 percent of a device's wholesale price. Schiller declined to discuss the financial details, but that percentage is similar to what Apple has been seeking in recent months, according to sources familiar with the program.
"They're just expanding the 'iPod tax'," said Gene Munster, a financial analyst at Piper Jaffray. "Ultimately Apple is tired of watching these people profit off their success."
Munster said the move is unlikely to dramatically boost sales for the Cupertino, Calif.-based company, but said "from an earnings perspective, given it is pure profit, it could inch the needle."
Though accessory makers are loath to criticize Apple publicly, there have been grumblings over the price the company is charging. An Australian online report quoted unnamed executives from speaker makers Altec Lansing and Bose grousing over the double-digit cut.
An Altec Lansing representative in the United States said the company has been unable to verify who, if anyone, at Altec made those remarks and said it is glad to be part of the program.
"We have a great relationship with Apple, and we fully support the 'Made for iPod' program," said Pamela Roccabruna, the senior marketing manager at the Milford, Pa.-based speaker maker.
Bose representatives did not return calls seeking comment.
Though some device manufacturers may quibble with the royalty Apple has set, there will be some peace of mind for them in knowing that the accessories they make today will work with the iPod of tomorrow.
As part of the current "Made for iPod" program, Apple will ensure that devices will physically accommodate future models of the player, Schiller said. Accessory makers can build a standard well for an iPod
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