Royalties Scare Abated, iTunes and Web Radio to Rock On


iPod Nano Chromatic

Businesses in the realm of digital music can breathe a collective sigh of relief — the proposed royalties hikes, which could have put webcasters like Pandora and music store titans like iTunes out of business, have been officially shot down.

The United States Copyright Royalty Board (CRB) chose to keep the current online music download rate at 9.1 cents per, stopping a maligned 6-to-15-cent rate increase dead in its tracks. Meanwhile, Senate legislators passed the Webcaster Settlement Act of 2008 Tuesday, which will allow royalties negotiations to continue between web radio operators, royalties-collection body SoundExchange, and the CRB judges.

This was a doom-and-gloom week for digital music fans, as two of the biggest names in their respective businesses – Pandora and iTunes – announced that a royalties hike could result in their demise.

The news was particularly startling for iTunes fans, as the popular online music store seemed indestructible with its runaway success. After five years, it grew from nothing more than a footnote in the iPod product line to being the top music retailer in the United States. Part of that success story lies in Apple’s legendary stubbornness in keeping its 99 cent-per-song price point, despite the fact that 70 percent of its per-track download income goes straight to the music publishers – placing the titan in an unusually precarious, cost-sensitive position.

The National Music Publishers Association, which asked for the rate hike on downloads, said it thinks it “established a case for an increase in the royalties,” noting that Apple keeps its prices low in order to “sell iPods.”

“We don’t make a penny on the sale of an iPod,” said NMPA president David Israelite.

Had the rate hike passed, said Apple, iTunes would cease to be profitable.

When confronted with Apple’s threats, however, Israelite later mentioned that he “never took seriously the idea they would take the store down because of an increase.”

Pandora, and much of the rest of web radio, faced an even harder bargain. The CRB’s proposed rate increases, which Pandora has been fighting for the last year, would run the station out of business and exceed the income levels of its smaller brethren.

Plans for the Webcaster Settlement Act were nearly derailed for reasons unknown by the National Association of Broadcasters, which represents U.S. terrestrial radio stations and broadcasting companies like Clear Channel. Critics called the NAB’s actions an attempt to quell competition, while the organization offered no comment. Its opposition ceased Monday, however, when a NAB representative told C|Net that it stepped out of the ring after meeting with streamcasters and addressing their concerns directly.


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