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October 2, 2008

itunes_store

Why Apple won’t shutter iTunes

Posted Oct. 2, ’08, 8:06 AM PT by Cyrus Farivar
Category | iTunes » iTunes Store

iTunes 8Today, the Copyright Royalty Board in Washington DC is set to meet to decide whether or not the royalty rate for music publishers would go up from nine cents to 15 cents per track.

As a consequence of that possible increase, an Apple VP recently told Fortune that this move would force Apple to operate the store as a loss, and thus the company would rather close it down. The Financial Times doesn’t buy it.

The FT’s Kevin Allison points out:

1. Apple’s market power means it still has an advantage in pricing talks.

2. Apple could appeal to a higher power to have an unfavourable CRB decision overruled.

3. Apple has already begun to embrace variable pricing on the iTunes store.

I don’t buy it either. iTunes is a loss leader to sell iPods and iPhones. You know that, we know that, everyone knows it. Apple has profited between $2 bil and $3 bil in each of the last few quarters. Is Cupertino honestly saying that a small loss on the iTunes store would seriously impact its bottom line significantly enough to cut off the main way that people get tasty stuff on their profitable iPods?


6 Comments

Michael said:

Seriously? You really believe they're not making a profit? If it is a loss now, it certainly won't be in the future. At some point iPod sales will slow but the appetite for music and video never will. They know this and are planning for it. If they let their profits get chipped away at this working strategy won't be so good.

October 2, 2008 8:15 AM
ghanna said:

A price hike by the record companies to compensate for higher royalties would be felt by all vendors of music not just iTunes store.
So prices should go up equally across the board.
$1.30 from iTunes store would still be competitive with a $1.30 from all other Vendors.
NO BIG DEAL! The Artist get a deserved raise.

October 2, 2008 8:57 AM
Strongblade! said:

Although I agree the possibility of the iTunes store closing seems a bit of a stretch, keep in mind that for Apple, the store itself is not a LOSS LEADER. A Loss Leader is one that loses money. The iTunes Store does not lose Apple money by their own admission. However the margin of profit may be quite narrow (perhaps even less than the proposed 6 cent increase to the musicians) and as such, might turn the iTunes store into a loss leader.

Most people would probably agree that since the big music industry giants are apparently gaining the bulk of the 99 cent per track sold, that they, not Apple, should absorb some or all of this 6 cent per track boost to the musicians.

After all, they are the ones that produce the music the big music industry makes billions of dollars off. And if artist are getting only 10% of the sales, it does seem a bit low...

October 2, 2008 11:41 AM
Anonymous said:

that is about 6% per song Apple would lose. What is to say they could not shut down the music portion of the store only till they get their way. Apple should also say they are shutting the music down untill the record companies stop forcing DRM on iTunes while giving everyone who wants to open a 'competing' store get all music DRM free

October 2, 2008 11:43 AM
Mainmukit said:

I'm thinking, how much of an effect this would have towards music being downloaded illegally? Would the numbers increase by a significant amount? Most likely.

Downloads are the way of preference to get music, CDs are outdated and the minority of people buy a CD.

If the price hike gets above the initial 99c, it would cause lower sales of music tracks, but certainly not a shutdown point for Itunes store.

October 2, 2008 6:15 PM
Anonymous said:

Yes, price hike please. "Artists" in need of yet more Columbian marching powder.

October 3, 2008 4:29 AM

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