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Would Apple Really Shut Down iTunes?

The Copyright Royalty Board is set to rule tomorrow on the National Music Publishers' Association’s requested increase in royalty rates from nine to fifteen cents per track for online music stores — an increase that could lead Apple to close down iTunes, according to a statement released last year from iTunes V.P. Eddy Cue. "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 … 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,” Cue said at the time.

The dominant iTunes controls 85 percent of the online music market but still operates on pretty thin margins — on top of the nine cents currently going to publishers, an additional 70 cents of a song’s 99-cent price tag heads to the record company that owns the rights. But could iTunes really not operate with increased costs? Or, as seems more likely, is Apple using a position of power to bluff away a royalty hike?

Apple's digital music showdown [Fortune via Prefix]

Photo: Courtesy of Columbia Pictures