Justice Department Squeezes Apple

The Department of Justice is considering the extent to which Apple Inc (NASDAQ: AAPL) has a monopoly in the digital music sales business. Its iTunes store controls much of the market. The government agency has begun talks with music publishers and small music download companies.

The New York Times reports that “investigators were probing whether Apple has tried to persuade music labels to not give rival Amazon.com Inc. exclusive access to soon-to-be released music.”

The music industry may want to be careful what it asks for in the event that its complaints are successful.The Apple iTunes store passed 10 billion downloads in February. The company accounts for 70% of digital music downloads worldwide.

Several publishers have resisted Apple’s pricing. But, without Apple most of these companies would lose a larger part of their sales. The music industry is already in deep trouble due to falling sales of CDs.  Even though iTunes pricing may be less than they would like and their cut of sales is below what they have asked for, Apple is the company that keeps their revenues at levels that allow them to survive.

Apple performs another service to the music industry. Piracy takes as much as 80% of the potential digital revenue from the music firms. While Apple does not use electronic systems to prevent the sharing of music and the iTunes store sells songs and albums that are later stolen, it is still the largest provider of un-pirated music and premier video content in the world.

The music business can work to curtail the dominance of iTunes, or it can accept less of what it wants as a portion of Apple’s take. But without Apple, there would be almost no take at all. No other company has 300 million iPods and 50 million iPhones in the market.

Douglas A. McIntyre