A federal array will determine if Apple, Amazon and the like should pay higher royalties to music publishers. But 99¢ songs likely aren’t going anywhere

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Apple CEO Steve Jobs has been a big proponent of keeping song downloads at 99¢. Getty Images

by Olga Kharif

A contentious contend between Apple and part of the music industry is company be unmistakable today (Oct. 2), when a panel of judges appointed by Congress is expected to rule whether Apple (AAPL) and other online music distributors should pay higher domain fees to science of harmonical sounds publishers.

The ruling by the Copyright Royalty Board affects not only Apple but in addition Amazon.com (AMZN), EMusic, RealNetworks’ (RNWK) Rhapsody, and Best Buy’s (BBY) Napster. Music publishers, who represent creators of song lyrics and sheet music, indigence each enlarge in royalty payments while Apple and the other companies are pushing for a reduction.

Their dispute underscores the larger debate from one to another the best methods for distribution and how to divide the proceeds from online music sales. As greater degree consumers access music over the Web and eschew press together disc purchases, a cross section of companies led by Apple has emerged as a conduit between consumers and the music industry, keeping a share of sales.

Publicly, Apple has railed against the prospect of a fee increase. During a 10-month trial that concluded earlier this year, Apple executive Eddy Cue claimed that a rate greaten could narrow already thin margins and that the company "would not continue to operate [the iTunes Music Store] if it were no longer possible to do so profitably." The testimony fueled worry that iTunes, whose downloads be obliged helped drive sales of iPods and iPhones, would shut down or drastically make some change in. its employment model granting that a royalty increase comes down the pike.

Many within the industry rely upon the board to leave the stream royalty compute unchanged at 9.1¢ for every 99¢ melody download. The panel is due to engage the parties with a written decision on Oct. 2 before making it society on Oct. 6.

Music publishers would like to see the rate raised to 15¢ for every 99¢ vent, arguing that online music dole costs much less than those of CDs, which in addition carry a 9.1¢ royalty. "You put on’t have to ship them, there aren’t any breakage problems," says David Israelite, president and CEO of the National Music Publishers’ Assn..

In an unusual twist, Apple’s opposition to a royalty increase puts it on the same side of the debate as the Recording Industry Association of America, which represents minute labels including EMI, Sony BMG, Universal Music Group, and Warner Music Group (WMG)—and is often at odds through Apple. Under existing agreements by online music sellers, the recording assiduousness would be forced to swallow up royalty increases, at least to the time when it could strike new accords with Apple and others. Record labels currently receive 70¢ of every 99¢ song download. They, in turn, part through the portion that accrues to publishers.

The RIAA and the Digital Media Assn. pronounce the current rate is already too abstruse and want it reduced to about 4¢ per download. Record labels are competing against music that’s distributed freely, explains DiMA Executive Director Jon Potter. "It’session a difficult thing to do," he says.

If royalties are increased, Apple is unlikely to change its tune on which it charges per download. CEO Steve Jobs has adamantly clung to the 99¢-a-song price tag. And on a level if Apple eventually coughs up a few pennies a song, the company’s bottom line won’confidentially take a big hit, says Trip Chowdhry, any algebraist at Global Equities Research. The iTunes Music Store accounts for less amount than 5% of Apple’s sales and upright a sliver of earnings.

Analysts in like manner don’familiarily expect much change in Apple’s pricing or business model one and the other. JupiterResearch surveys show that the 99¢ price strikes a harmony with consumers. Higher prices and different approaches, such as subscriptions, clearly do not find befriend with the mass market. "Going to subscriptions is not a simple disunion," says Jupiter analyst David Card.

Ultimately, the music industry could support if Apple were somehow forced to raise its prices, some analysts express. "If the price is too high, everyone is going to savor the other way, which is free," says Daniel Ernst, an analyst at Soleil-Hudson Square Research, which has a buy rating on Apple.

Whatever decision the board announces, it’s in a great degree unlikely to go uncontested. Parties to the dispute can petition the board to revise its decision within 15 days. If a rehearing is refused, combatants can seek reference of the case to the U.S. Court of Appeals for the District of Columbia Circuit. Congress is another resources of recourse. Just this week, House and Senate lawmakers passed legislation asking the music industry and Webcasters to reconsider province rates that the board imposed on Internet radio stations in 2007.