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October Surprises: Wal-Mart Turns off DRM, iTunes Threatens to Shut Down

The issue of accessing the music store with new non-DRM MP3 files also affects Macintosh users, who cannot use the new store via the Safari browser.

Meanwhile, in a move that gave everyone pause (and was called out in an email a few months ago by Christopher Levy of BuyDRM) Apple made a threat to shut down iTunes, potentially stranding hundreds of thousands of people who have purchased DRM-based music from iTunes. The threat was not based on a desire to open up the industry and go toward non-DRM content, although Apple CEO Steve Jobs has requested that music labels move that direction.

Instead, the threat to shutter iTunes came upon the heels of an announcement that the Copyright Review Board (CRB) was planning to review—and potentially hike—royalty rates for mechanical reproduction royalties.

The rate until the mid-1970s had held at $.02 per song, but has been trending upwards to its current rate of $.091 per song or $.0175 per minute for songs over five minutes and twelve seconds.

The current rate was set in 2006, and the sense was that the CRB would push the rate up 66% to $.15 per song.

Apples iTunes vice president, Eddy Cue, said Apple would have no alternative but to shutter the store—or pass on the cost to consumers.

"If the [iTunes music store] was forced to absorb any increase," said Cue, " the result would be to significantly increase the likelihood of the store operating at a financial loss . . . [Apple] most likely would not continue to operate [the iTunes music store] if it were no longer possible to do so profitably."

While the threat may very well have been a bluff on Apple's part, the CRB did choose to leave the rate unchanged for the time being.

Finally, the Recording Industry Association of America held a press conference that had bearing on the CRB's meeting, in recognition of the fact that online, streaming audio is akin to—but not the same thing as—downloadable music and video content. While we in the streaming industry recognize this from a technical standpoint, the legal implications are worth noting.

Mechanical royalties, which were noted above as part of the iTunes/CRB issue, have traditionally not had bearing on terrestrial radio stations, but the RIAA has been making inroads into this area by cutting a deal with satellite radio and then pursuing streaming media "radio" broadcasters. Mechanical royalties only come into play, or so it has been argued, when content is downloaded, not when it is streamed. But performance rights, which were covered by the satellite radio agreement, meant that net broadcasters would have to pay for playing content streaming on the web.

The RIAA press conference confirmed an in-principle agreement whereby mechanical royalties will be capped at 10.5% of revenue, specifically for services that provide interaction or "limited download" or caching capability. These rates apparently include revenue from subscribers as well as any advertising revenues, but the mechanical royalties can also be reduced if an online broadcaster pays for performance royalties directly to the artists.

The percentage of performance royalties is being debated in Congress, and will be watched closely by terrestrial radio broadcasters and the National Association of Broadcasters (NAB) but for now one other piece of good news is in the works for streaming-only audio broadcasts.

"Outside the scope of the draft regulations," the RIAA and Digital Media Association said in a joint release, "the parties confirmed that non-interactive, audio-only streaming services do not require reproduction or distribution licenses from copyright owners."

As one news site pointed out, "this could mean Shoutcast's mechanical royalties tier is reduced to zero, on the theory that an Internet-based radio player such as Winamp is more like a traditional AM/FM radio than it is a CD reproduction system."

Apparently it does pay to stream.

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Walmart Shutters its Music Store—Again!—but Video Survives

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