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As technology continues to transform the way that consumers satisfy their entertainment needs, the contentious differences over where all the money should go become more and more visible. With the Writers Guild of America strike still in recent memory and a strike by the Screen Actors Guild threatening, the consequences of failed agreements are obvious. Everyone suffers, but the consumers are the innocent victims.
This tension is now a focus in the music world once again. Earlier this week, Fortune magazine raised concerns about a proposed increase in royalty rates for digital music stores in light of the statements made by Eddy Cue, vice president of Apple’s iTunes Store. In response to the proposed hike, which would have raised the royalty rate from 9.1 to 15 cents per song and was backed by the National Music Publishers’ Association, Cue stated that iTunes might not continue to operate if forced to choose between raising song prices or absorbing this higher royalty rate. Fortunately for iTunes and other online music stores, the Copyright Royalty Board eventually decided to keep the royalty rate at the current 9.1 cents per song, the same rate than has been in effect for the last ten years.
A decision to raise the rate would have been quite a blow for iTunes, considering their expressed unwillingness to raise song prices and the fact that doing so might push customers to other alternatives such as peer-to-peer networks. Because a decrease in the sales by online music stores would be no help to anyone, the decision seems to be a good one.
Also this week, the Senate approved a bill that will allow Internet radio broadcasters, such as Pandora.com, to renegotiate the royalty rate that they currently pay. Pandora, like iTunes, has cautioned that shutdown may be inevitable in the face of a crushing royalty rate. (Pandora apparently sees the situation as critical already, as the site uses 70% of its revenue to pay for royalties.) This decision will only be helpful to the web broadcasters, however, if they are able to successfully negotiate a more workable rate.
The decisions of this week seem to be a step in the right direction. Anything that limits consumers’ freedom of access to music is likely to only hurt the industry as a whole. The balance may be a tough one to achieve, but it is critical in the industry since consumers, as a result of the many options (both legal and illegal) that technology offers, will quickly move on if their preferred medium becomes impractical or unavailable.
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