Apple Threatens To Close iTunes Store

Dennis Faas's picture

Apple has threatened that if royalty rates for digital downloads increase, as is likely to happen this week, it might shut down the iTunes store. But analysts say the firm is highly unlikely to follow through on the threat.

Apple first made the stern warning at least 18 months ago in a written submission to the Copyright Royalty Board but has only just emerged. iTunes vice president Eddy Cue wrote that if the store " were forced to absorb any increase in the mechanical royalty rates, the result would be to significantly increase the likelihood of the store operating at a financial loss -- which is no alternative at all."

He added that "Apple has repeatedly made clear that it is in this business to make money, and would most likely not continue to operate [the store] if it were no longer possible to do so profitably." (Source:

The board is meeting this week to discuss a planned rise in royalty rates from 9 cents a track to 15 cents. (This rate is for songs which are sold and is not connected to the ongoing negotiations over rates for tracks played by online radio stations.)

There's already speculation that the comments may have been leaked by Apple in the hope that iTunes customers will take its side and pressure the board to abandon the royalty hike.

However, it doesn't seem there's any serious likelihood of the iTunes store disappearing even if the rates do go up. As the Financial Times points out, the royalty payments are for artists and Apple may well be able to use its dominant position so that the extra cash comes from the record industry's cut of iTunes sales. And even if the iTunes store only broke even, it would still play a valuable role in driving iPod sales, which are much more lucrative to Apple. (Source:

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