Apple Threatening "Scorched Earth" iTunes in the US and Norway?

Looks like Apple might be shutting down iTunes in the US and Norway. At least that's what VP of Internet Services (iTunes, Mobile Me, App Store), Eddy Cue says (via Macrumors):

"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."

What's the deal'yo? In two separate, but equally perplexing bits of news, the US Government is thinking of dumping an extra $0.15 surcharge (going to copyright holders) onto digital downloads, which would result in either consumers paying $1.14 a track for iTunes music, or Apple eating the $0.15 itself.

Since Apple already gives the record labels $0.70 per download, and out of the remaining $0.30, pays all the bandwidth, storage, infrastructure, credit card and other transactional feeds, administration, etc., cutting that margin in half is not realistic for a for-profit company (can you say shareholder lawsuit?)

Hey, here's an idea, why not take that from the record label's cut? They've made a business out of negating artists rights (remember, they went to court to get ringtones declared derivative works, so they don't have to pay artists -- but still charge consumers ridiculous, pure profit, premiums for them!), so it seems only fair restitution should come from their end (provided the artist still holds the copyright...)

iPhone 3G ThorMeanwhile, Norway wants Apple to open Fairplay DRM. While Apple has publicly stated they themselves want to rid music of DRM, the record labels won't give them DRM-free music (preferring to use it to bolster competitors like Amazon and Naptser), so how about Norway go have a word with the Big 4? I'm sure everyone else would love to be rid of that short-sighted bit of un-usability. Then go swing the mystic hammer at Hollywood and get us DRM free TV and movies while they're at it. As we all know, DRM doesn't stop real pirates, it just makes it harder for real users to manage.

What do you think? Is Apple rightly on the hook? Or is it time pressure was placed where it really belongs, on the Big Media companies?

Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, Review, The TV Show, Vector, ZEN & TECH, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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There are 13 comments. Add yours.

Richard says:

I'd call Apple's bluff.

Bryan says:

+1 on calling Apple's bluff! They know that iTunes is a big reason for the popularity of the iPod and all that came after the 1st Gen iPods. If they were to get rid of iTunes; I bet you would see a drop in iPod/touch/phone sales, which in turn would be a decrease in revenue and stocks. Go ahead make my day!

RJ says:

I definitely would call Apple's bluff on this one as well. First off, taking 30 cents a song currently is probably resulting in a very nice profit margin which they have room to work with. Secondly, they would just pass the cost onto the consumer and keep making their current profits. To shut down operations would be a very stupid business move.

TBA says:

Punish those people who actually pay for digital content. Let them pick up the bill for those who choose to download files free of cost. It is amazing the way some people think (greed) as they continue to legislate support for a broken business process.

FJR says:

I think it all boils down to if .99 is still the magic number. If raising prices up to above .99 results in drastically fewer sales, then I wouldn't doubt apple all that much. You guys are crazy if you think apple makes .15 per song in profit right now off the iTMS.
TBA Says:
October 1st, 2008 at 5:52 pm
"Punish those people who actually pay for digital content. Let them pick up the bill for those who choose to download files free of cost. It is amazing the way some people think (greed) as they continue to legislate support for a broken business process."
what are you talking about? I can't make heads or tails of what you're trying to say there.

R0N1N says:

Don't let the door hit you on the way out, Apple...

TBA says:

What I am saying is this proposal requires anyone buying files pay an extra 15 cents per file. Those who download from P2Ps pay nothing. Thus this punishes those (charge extra) for those who are paying customers. How long until they get fed up with the added cost and just start downloading illegally?

ROAMINGRICAN says:

I think the record companies are responsible for what will result in a massive loss of revenue iTunes makes up 85% of all music sold worldwide and I can guarantee that while no doubt artists are involved the record companies are the ones making the big push for this.
Yes if iTunes closes people will go elsewhere but if I have to click more than 3 buttons to get my music onto iTunes I'll go for the free stuff and try and tell me I'll be alone in that mindset. F#%¥! The labels. And if any artist feels slighted by this email me and I'll gladly cut your check for $.15

FJR says:

Roamingrican Says:
October 1st, 2008 at 7:45 pm
"I think the record companies are responsible for what will result in a massive loss of revenue iTunes makes up 85% of all music sold worldwide and I can guarantee that while no doubt artists are involved the record companies are the ones making the big push for this. Yes if iTunes closes people will go elsewhere but if I have to click more than 3 buttons to get my music onto iTunes I’ll go for the free stuff and try and tell me I’ll be alone in that mindset. F#%¥! The labels. And if any artist feels slighted by this email me and I’ll gladly cut your check for $.15"
Um, no. Record labels are fighting this tooth and nail. I know people love to blame record labels for everything they dont like in the music world, but this is beyond ridiculous. You obviously don't know anything about this legislation, yet you go into a non-sensical rant. THis takes money out of the labels pockets, because either they'll have to absorb all or at least some of the .15 increase or they'll see lower sales because the songs cost more. So can you locically explain to me how the labels are the masterminds for this gigantic conspiracy to take money out of their own pockets?

FJR says:

also the statement "iTunes makes up 85% of all music sold worldwide" is laughably wrong. digital downloads all put together don't make up 85% of all music sold worldwide, let alone iTunes by itself.

Albert says:

Does this even matter... why are people still buying DRMd music?

emeus says:

I agree call their bluff.

Keil Miller says:

DRM is why I have made 0 purchases through iTunes. They don't have my buisness. But they would if I didn't have to worry about which computer of mine it is on!