Credit: Apple

The three-member board that sets statutory copyright licences emailed the Digital Media Association (DiMA), the National Music Publishers' Association, Apple, and other download stores with its decision to keep the royalty rate US$0.091 cents. The board also set the same rate for CDs and mandated established a US$0.24 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 US$0.091 cents to US$0.15, a 66 per cent 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."

Music industry sings the blues
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 licence.

But in my dealings with music publishers, I've heard them complain for a long time about the US$0.09 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 he had hoped for an increase. Still, he insisted there was still plenty to be happy about.

"What DiMA had asked for was a reduction to 4.5 cents (or 55 per cent)," 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."