Apple says it may come to that if events force its hand. This despite the fact that iTunes has probably been one of the most popular as well as succesful online music stores ever. However the copyright royalty board wants rates raised from 9 cents to 15 cents a track - a 66% hike. This is something that Apple says it cannot afford.

In a statement submitted to the board last year, iTunes vice president Eddy Cue said Apple might close its download store rather than raise its 99 cents a song price or absorb the higher royalty costs.

Practically speaking, while Apple may be using its threat to force a decision in its favor, it seems highly unlikely that the store which is one of the reasons of the iPods popularity can shut down. However Apple argues that the market would not be favorable to absorb any hikes in the 99 cent a song price ; and they would themselves be unable to cushion the hike required by the artists.

Apple pays an estimated 70 cents of every dollar it collects per song to the record companies responsible for each track. The record companies turn over nine cents to the music publishers who control the copyrights to these tunes.

Publishers argue that Apple wants to keep the songs cheap since it helps sell iPods - something that is not benefitting them at all, so they dont really care if Apple have to increase the prices at the store.

It is estimated that Apple will sell 2.4 billion songs this year, giving it an 85% share of the digital music market.

Source