Apple threatens to shut down iTunes if royalty rates rise

Apple says it has its finger on the big red button and it'll go nuclear if Hollywood and Washington push through higher royalty rates for digital music tracks... a move which may be imminent. Right now Apple pays 9 cents per track it sells to music publishers. Publishers want to hike rates up to 15 cents per track. (That would raise Apple's total payout to various music rights holders from 70 cents to 76 cents per track.) How will it end?

Last year Apple said that closing its phenomenally popular iTunes Music Store would be preferable even to raising prices on downloads. Tomorrow the Copyright Royalty Board is finally expected to rule on whether the National Music Publishers Association can raise its rates, which would force Apple to either back down from its threat or to suck it up and either swallow the added costs or, gulp, raise prices.

Apple of course has the power to make its voice heard here, and the industry must be cringing over whether Apple will back up its threat with action. Apple's iTunes is now the #1 retailer of music in any format, online and off. It even outsells Wal-Mart now.

But is Apple really that crazy? The company is set to sell about 2.4 billion songs this year, dominating the market it pioneered and doing so profitably. Would Apple really cede the market to other competitors like Amazon? Apple hasn't commented lately on its previously outlined threat, though it has also petitioned the Copyright Royalty Board itself: Apple actually wants publisher rates to go down, from 9 cents to 4.8 cents per track.

What will happen? It's all in the lap of the Copyright Board right now. But even if the rate hike does go through, it's hard to imagine Apple shuttering iTunes out of principle. The company's being beat up in the market right now as demand has softened for expensive, high-end computers. If it ditched iTunes, what would it have left?