Page last updated at 08:22 GMT, Friday, 3 October 2008 09:22 UK

Online music avoids rate hike

The iPod is the world's most popular digital music player with 160m sold

The veiled threat to shut down iTunes if royalty rates on downloaded songs were hiked has been averted.

The Copyright Royalty Board (CRB) opted to keep the status quo and turned down a request to increase royalties from 9 to 15 cents on songs bought online.

The National Music Publishers Association (NMPA) asked for the rise while Apple opposed it and said it could result in iTunes being shut down.

"We're pleased with the CRB's decision," said Apple's Tom Neumayr.

In testimony submitted to the CRB 18 months ago, but only brought to light this week, Apple executive Eddy Cue said: "Apple has repeatedly made clear that it is in this business to make money and would most likely not continue to operate iTS (the iTunes Store) if it were no longer possible to do so profitably."

The CRB also rejected a call to cut the rate to 4.8 cents and in the end agreed to peg it at 9.1 cents a song for the next five years.

Even though the NMPA was behind demands for a rise, it "hailed the Board's decision as a positive development for all songwriters and music publishers".

"This decision represents an important milestone for the music industry," said NMPA president David Israelite.

"These events will bring clarity and order to an environment that for the past decade has been hampered by litigation and uncertainty on all sides."

'Innovate and grow'

This decision marks the first time the Board has established mechanical royalty rates for songs distributed digitally.

An ad shows colours of the new iPod Nano
Apple charges 99 cents for every song downloaded through iTunes

The Digital Media Association, which represents online music stores including Apple, and Best Buy, applauded the outcome.

"Keeping rates where they are will help digital services and retailers continue to innovate and grow for the next several years," the Association's executive director Jonathan Potter said in a statement.

The Recording Industry Association of America said sales of digital songs and albums rose 46% last year to $1.2bn (652m).

Over the last five years Apple has sold more than 5bn songs online.

Meanwhile CD sales dropped 20% to $7.4bn (4bn).

For ringtones, the federal agency set a new rate of 24 cents, roughly in line with industry practice of paying songwriters 10% revenue on each $2.50 (1.35) ringtone. The rate was even higher than the 15 cents per song requested by songwriters and publishers.

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