Your 99c per iTunes download belong to the RIAA

November 9, 2003

Quakester2000, GristyMcFisty and sorti all used our news submit to tell us that Despite Apple's legal download service being so successful and serving over 80% of the market on legal music downloads, Apple in fact makes no revenue from their online download service. Even though the tracks are digitally encoded online without any CD-replication costs, CD delivery costs and shops to run apart from the iTunes store itself the tracks are still very severely over priced by the music industry. Nearly all of the 99 cent one pays for an Apple iTunes download goes straight to the copyright holders. The small portion that Apple gets just barely covers the iTunes hosting and running costs, the credit card company cost per transaction as well as the iTunes webstore & client software development.

Apple would like to break even or make a little profit from their iTunes service, but instead have to rely on its sale of hardware accessories such as the iPod. Unfortunately, Apple is also forced to protect their tracks and software with DRM restrictions in order for the labels to allow Apple to deliver their music.

Wasn't the Internet, this weightless kingdom of bits and bytes, supposed to make distribution costs just vanish? Apparently not.

At an Apple financial analyst conference on Wednesday CEO Steve Jobs admitted that Apple makes no revenue from the online download service, the iTunes Music Store, that he launched in April. As iTMS is the leading download service, with 80 per cent market share (or so Jobs claimed), where's your 99 cents per song going?

Well, although it costs nothing for the record industry pigopolists, this small ragged army, to make a digital version of one of its hoardings available to hear, somebody must pay. It costs Apple real dollars to provide the hosting service that delivers that digital file to you, and to write the sophisticated software that delivers it. Meanwhile, almost all the cash is flowing back to the copyright holders. Who, when you last looked, were a dinosaur oligopoly of five record labels, desperately seeking a way to preserve their copyright cartel into a new century. They were down, and they were out: but Steve Jobs rode to their rescue.

"Most of the money goes to the music companies," admitted Jobs.

"We would like to break even/make a little bit of money but it's not a money maker," he said, candidly.

So now we have it on record: the music store is a loss leader. Jobs said Apple would pay its dues to the RIAA, then seek to make money where it could, from its line of hardware accessories. When the conversation turned to rivals such as eTunes and Napster, Jobs said: "They don't make iPods, so they don't have a related business where they do [make money]".

Read the full story here.

We previously reported on what appears like Apple ripping off the musicians , but apparently Apple ends up having to pay out for all the running costs and the music industry are making a fortune from their 65% cut. All the music industry has to do is provide Apple the tracks and even after paying the artists their 10% or so cut; they still get over a 50% cut in what a consumer pays on an iTunes song with very little work involved!

Discuss about online music services and file sharing on our Music Downloads, P2P & Legal Issues Forum.

Source: The Register