Wednesday, October 01, 2008

Is Apple bluffing on shutting down iTunes

I posted earlier on the potential of Apple to shutdown iTunes over the proposed royalty increase. It may not be a joke. Before you snicker, consider the fact that Apple only gets one-third of the price of each song it sells. So when you hear the impressive figure of 5 billion songs sold, Apple probably brought in a little over 1.5 billion. It's not chump change, but that's all the money Apple's ever made over the life of the iTunes store. It's pretty weak considering Apple has close to 20 billion in revenue every year from all sources (iPhone, Macs, iPods, software). Apple could drop the iTunes store and the revenue it loses would be minimal.

The ensuing public relations disaster would be another story. Millions of customers would have legitimate concerns that their DRM protected songs would still work. You think the 2007 200 dollar iPhone price drop garnered bad publicity? That would be a drop in the bucket compared to a DRM uproar. Apple of course will blame the music industry for everything, but that's a mule that can only take so much beating. People eventually will feel bad for the mule and will take it out on Steve Jobs. The loyal Macheads will still by computers, but don't expect the 75 percent dominace Apple enjoys in the mp3 player market place to continue. Something for Mr. Jobs to think about before shutting iTunes down. My advice: do what every business does: pass the new royalty charge along to the customer. Don't cut off you nose to spite your face.

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