Digital Music Showdown: Will Apple Blink?

Ho-hum. Didn't we just settle a royalty dust-up just a little while ago? Yeah, we did, but this one isn't about Internet radio; it's about songs purchased from online music stores --- and that includes iTunes, naturally. However, Apple has threatened to close shop if an increase happens, so who's going to blink first?

On Thursday, the Copyright Royalty Board (CRB) is expected to rule on a royalty rate hike request by the National Music Publishers' Association (NMPA). It's no small hike, either, at least in terms of percentage: the NMPA wants a (per track) 66% increase from 9 cents to 15 cents.

Naturally Apple isn't happy about this, and last year, Eddy Cue, Global Vice-President of iTunes at Apple said in a statement submitted to the CRB (.PDF):

“Apple has repeatedly made it clear that it is in this business to make money, and most likely would not continue to operate iTS (the iTunes music store) if it were no longer possible to do so profitably.”

Now, does anyone really believe iTunes couldn't make a profit? No, of course not. It would likely have to raise prices, however.

But despite its near-monopoly in digital music sales, Apple doesn't make much per track: an estimated 70 cents of each purchase goes to record companies (who then give the aforementioned 9 cents to the music publishers). But it's iPod and iPhone sales that Apple really wants to drive with low iTunes prices.

Unfortunately, record companies aren't too sympathetic. David Israelite, president of the NMPA, told Fortune:

“Apple may want to sell songs cheaply to sell iPods. We don’t make a penny on the sale of an iPod."

In the end it's all about the money, and who's going to get more of the customer's money, right? But in reality, win or lose, Apple's going to blink. It's not going to close up. Without iTunes, they lose a major reason to buy an i-whatever device, and that's where the money really is.