Topic: Royalty Rate doesn't change for online-to-download sales of music (ITunes)

[MysterD]

The NMPA (the National Music Publishers' Association) was looking to raise the rates for digital-music sales from 9.1 cents on royalties to 15 cents, which would've been a 66% increase.

Apple did NOT want a rise in their online prices forced through ITunes b/c they think they'd lose a ton of cash -- especially since songs wouldn't be 99 cents per song anymore (which they think their 99 cents per song deal is a good selling point). Apple did make a harsh remark stating if this change was made, they might think about closing ITunes (who knows if they'd actually go that far, though, if it did occur).

Well, the ruling has been made -- Apple basically won and got their way.

The Copyright Royalty Board on Thursday froze the rate that digital-music stores, such as iTunes and RealNetworks' Rhapsody, must pay music publishers.

The three-member board that sets statutory copyright licenses e-mailed the Digital Media Association (DiMA), the National Music Publishers' Association, Apple, and other download stores with its decision to keep the royalty rate 9.1 cents.

The board also set the same rate for CDs and mandated established a 24-cents rate for ringtones. The decision is the first time the Board has established mechanical royalty rates for digital downloads.

What all this means of course is that Apple will not be shuttering iTunes--as if there was ever much of a chance for this--and appears to remain very much in control over the economics of digital music.

Alarm bells were set off on Tuesday when Fortune magazine reported that Apple had told the CRB that "it most likely" would shut down iTunes, if forced to pay too high a royalty rate. Eddy Cue, Apple's iTunes manager, had told the royalty board in April 2007 that the company "would not continue to operate (iTunes), if it were no longer possible to do so profitably."

The group representing music publishers had sought a per-song rate boost from 9.1 cents to 15 cents, a 66 percent increase. Certainly, nobody can predict what Apple will do, but at this point, it looks as if the company got what it wanted. In short, Apple won.

"We're pleased with the CRB's decision to keep royalty rates stable," said an Apple spokesman.

A music industry source said that Cue's statement to the CRB may have gone a long way in persuading the CRB not to boost rates. "Sure it was posturing," said the source. "That's what you do in court. I don't think Apple would have gone out of business but a statement like that from the biggest music retailer is going to carry some weight."

Mark Litvack, an entertainment and copyright attorney and a former legal counsel for the Motion Picture Association of America, said rates have traditionally gone up during these kinds of negotiations. But Apple has "effectively set the economics of the music industry, which now appear to be frozen."

The group representing music publishers applauded the CRB's decision publicly but not everybody on that side of the debate was happy. One music industry source familiar with the negotiations, said the publishers would probably have liked more money but should be happy that the CRB didn't attach the rate to a percentage of a music-store's revenue.

That would have created huge accounting headaches, according to the source. The decision also prevents DiMA from going to Congress in the same way that the Webcasters did last week, according to the source.

Pandora, an online radio service was part of a movement to negotiate a new rate for streaming music (as opposed to downloads) with the music industry. That movement lobbied hard in Washington and won congressional okay to reach a settlement with the music industry on a compulsory license.

But in my dealings with music publishers, I've heard them complain for a long time about the 9 cent royalty rate. In some corners, the lack of any increase will not be received well. Nobody has been a more vocal proponent of raising rates than Rick Carnes, president of the Songwriters Guild of America. On Thursday, Carnes acknowledged that he had hoped for an increase but insisted there was still plenty to be happy about.

"What DiMA had asked for a reduction to 4.5 cents (or 55 percent)," said Carnes, who has written songs for Alabama, Reba McEntire and Dean Martin. "When you look at 9.1 it's only a disaster but 4.5 is Armageddon...If you look at record sales, they've just been a disaster. It's hard to go to the judges and ask for money at this point of time... Everybody is hurting frankly and until we get a solution to the massive looting on the internet we're not going to be able to move this thing much."

Mike McGuire, a music industry analyst for Gartner, said that the royalty board made a wise decision for consumers, musicians and download stores by not raising rates. The download stores are competing against piracy, and obtaining illegal downloads is simple and hard to compete with on price: their free.

"This was a smart move by the CRB," McGuire said. "This is still a new and struggling industry and now isn't the time for a drastic rate increase that will have an effect on pricing."

[idolminds]

Shit, who do I root for? Apple or the RIAA? I would have totally loved to see the music industry not flinch and force Apple to make good on its threat. That would have been awesome.

[Quemaqua]

I say we burn them all in effigy.

[scottws]

Apple close iTunes?  That's hilarious.  They are making a killing.

[WindAndConfusion]

The three-member board that sets statutory copyright licenses e-mailed the Digital Media Association (DiMA), the National Music Publishers' Association, Apple, and other download stores with its decision to keep the royalty rate 9.1 cents.

The board also set the same rate for CDs and mandated established a 24-cents rate for ringtones.

Did I misread this, or does that mean the royalty rate for ringtones is about 2.6 times higher than the rate for songs?

[Pugnate]

Shit, who do I root for? Apple or the RIAA?

Hahahaha Idol, that's exactly the thought that crossed my mind.

[MysterD]

Did I misread this, or does that mean the royalty rate for ringtones is about 2.6 times higher than the rate for songs?

More like the ringtone rate is 100 times higher than they probably should be!

[Xessive]

Ringtones should be free especially if they're excerpts of songs.

I know MP3 and AAC ringtones are all the hype now but I'm still into midi and polyphonic tones. I love making my own or adapting songs I like.

[iPPi]

With the proper tools you can make your own mp3 ringtones.  If your phone is branded, getting the mp3 ringtone onto your phone may be a little more troublesome, but it's still doable... you'll likely have to DRM your own ringtones so you can upload it to your phone.

[Cobra951]

I'm sure it is, but I care so little about uploading custom ringtones that I never invested the time to figure it out.  I wanted to try video encoding for my phone, and that was way easy.

[Ghandi]

I hate ringtones with a passion - I keep my phone on vibrate constantly. There's nothing more irritating than a really annoying ringtone set on maximum volume.

[Quemaqua]

THANK YOU.  That shit should be abolished.

[Xessive]

I generally like my ring tones to be ringing sounds or some kinda of smooth tone, which is why I generally stuck with midi. I could just make a file with a D note on intervals, simple and satisfactory. I'm not a fan of songs as ringtones but my sister frickin' loves it. Don't know if it's a girl vs guy thing.

[MysterD]

Ringtones should be free especially if they're excerpts of songs.

Agreed.

Who the hell wants to pay for 1/15th of song?
At least give me the whole damn song, for crying out loud!

[gpw11]

Well, obviously the people paying for them want to.  I mean, it's possibly the most useless thing ever and there's no utility.  It's for idiots. 

Strangely, Keith and the Girl were talking about this the other day.  They're "full time" now (think Penny-Arcade) and so they scrape together little things to make money.  They recently put together a bunch of ringtones for people to buy (mostly, these make fun of people with ringtones). The interesting thing is that Keith was saying they basically get no money for it.  His exact words were "what a racket!!".  The hosting site takes 50%, which they thought was 100% fair.  The racket part comes in with the providers.  They take another HUGE chunk for pretty much nothing but allowing access to "their" phones...which were made by a hardware company.  Insane.