France Offers Apple a Loophole
Tuesday, July 4, 2006
The French government's passage of a controversial law last week could force Apple Computer Inc. to loosen ties between the iPod and music purchased on iTunes, a move that has left analysts wondering whether the company will comply or close its business in France.
The legislative action in France was intended to open the digital music business so that songs purchased at any online store -- be it Apple's iTunes or Napster -- could play on any digital music player: Apple's iPod, Creative Technology Ltd.'s Zen or others.
The law, as passed, is a watered-down version of a bill proposed earlier this year. It now includes a loophole that allows Apple to seek permission from artists, record labels and publishers to keep its digital rights management software on the downloadable music tracks so that they cannot be played on non-Apple devices.
Apple, which had called the proposal's earlier version "state-sponsored piracy" that would send consumers back to file-sharing programs for music downloads, has been mostly quiet about the law's passage and the impact it might have on business in France. The company did not return calls seeking comment yesterday.
Analysts, however, are divided on how Apple might respond. Some think the law will have little to no effect; others think Apple could go so far as saying au revoir to its business in France, as the company hinted earlier this year. If the company complies, other countries, some of which have expressed concerns similar to France's, might follow with laws of their own.
"Apple might seriously consider withdrawing," from France as a result of the law, said Roger Kay, principal analyst at research firm Endpoint Technologies Associates Inc.
Kay said he thinks complying with the new law might amount to more of a headache than France's business is worth to the company. "It's only a tiny percentage of their iPod and iTunes revenue," he said.
Plus, some music publishers could gain an upper hand in a pricing dispute if Apple comes seeking permission to leave restrictive software on their music. Record labels have suggested raising Apple's 99-cent, per-track price, but the company has consistently rebuffed a price hike.
Tim Bajarin, principal analyst with Creative Strategies, said the law could result in a lot more paperwork for Apple, but he thinks it will be "business as usual" for Apple in France.
"In the U.S., artists are clamoring to get on Apple's iTunes, and that's been the case in every country," he said. "For an artist to say no to being on iTunes -- that would be shooting themselves in the foot."
The law would apply to other online music stores that do business in France, but Apple's iTunes store is by far the most successful operation with an interest at stake.
Other countries, such as Sweden and Norway, have expressed concern about Apple's controls that tie the iPod and iTunes store. Norway's Consumer Council issued a statement earlier this year accusing Apple of breaking Norwegian law by not letting consumers play iTunes music on other digital players.
Neither country has said how it will address those concerns.
Meanwhile, a small consumer backlash has occurred in the United States, in the form of a consumer advocacy group that is also trying to get Apple to remove the digital rights management restrictions from iTunes music files.
Members of the activist group Free Software Foundation have staged protests this summer outside of Apple stores across the country, with members dressed in colorful toxic waste suits and carrying signs that rate digital rights management software such as Apple's as "Defective by Design," the name of the group's campaign.
Henri Poole, a Free Software Foundation board member, said that such software restrictions infringe on consumer rights and are designed to protect "antiquated business models."
"We purchase [songs] and we think we have the same rights we had two years ago, but those rights are being eroded and the [digital rights management] rules can even be changed after you've purchased," he said.