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Friday, March 04, 2005, 01:05 pm PT (04:05 pm ET)

Apple seeks royalties, consumer protection with \"Made for iPod\" campaign

Industry insiders say the world-wide MP3 accessory market is destine to become a half billion dollar business by the close of the 2005 calendar year. Apple, whose iPod digital music player dominates the MP3 player market, is looking to reap some of the benefits of this capitalization through an iPod marketing campaign it will roll-out sometime in the next two months.

The campaign, which Apple announced last January, introduced a "Made for iPod" certification (or badge) that iPod accessory manufactures can display to differentiate their Apple-authorized accessories from those that have not been approved by the iPod maker. In recent months, the iPod accessory market has been met with a proliferation of low-quality iPod accessories that, in some cases, have proven to be hazardous to Apple's iPod hardware, even when used as instructed.

But keeping consumers safe from these potentially dangerous add-ons may not be the only driving force behind Apple's motives. According to sources, the licensing agreements for which the program is base requires that accessory makers hand over a percentage of the revenues gained from products sporting the "Made for iPod" badge.

According to sources, Apple is rumored to be seeking an approximate 10% royalty kick-back on all products that will display the badge. For example, an authorized iPod accessory which retails for $50 would add $5 to Apple's bottom line, the proceeds of which will likely be used to offset the costs of its massive iPod advertising campaign.

Most of the larger iPod accessory makers AppleInsider spoke to supported the campaign, saying that any licensing fees that may be associated with the program would be worth the cost of the ensuing marketing benefit and industry stabilization. Still, a select few of the smaller manufacturers — who don't sell at high volumes — have vocally opposed the campaign, arguing that any imposed licensing fees would cut into their profit margins. At least one manufacture of iPod add-ons said it would cease development of iPod related products as a result of fees associated with the campaign, while several others continue to weigh their options.

Belkin, one of the leading suppliers of iPod accessories, declined to say whether or not Apple was seeking royalties with the campaign, but was confident in saying the campaign would not trigger a price increase on its products. The company said it expects to begin manufacturing products with the "Made for iPod" badge in April for delivery to retail stores by May. Its car charger product will likely be one of the first accessories to sport the badge on its packaging.

As recently as two weeks ago, Belkin surpassed the 2.5 million mark in accessories shipped for Apple's hard disk-based iPods, saying it expects to reach the 4 million mark by the end of the year. The company is also working on a slew of accessories for Apple's new flash-based iPod shuffle player, which will debut at lower price points and include cases, chargers, and other gadgets. The products will cost less than those associated with Apple's hard disk-based players because they will be 'electronically simpler,' said Brian Van-Harlingen, senior technology manager at Belkin. Griffin Technology, a company that markets a similar array of iPod add-ons, did not respond to repeated inquiries for comment.

According to insiders, iPod's share of the $500M MP3 accessory market is equal to, and likely greater than, Apple's share of the overall MP3 player market. Even if the company was only to receive a 5% share of all iPod related accessories sold, proceeds from the "Made for iPod" campaign would still add several million dollars to Apple's bottom line each year.