Wednesday, January 9, 2008

Jobs solves one EU problem

As I’ve noted, French EU industrial policy is about picking on winners and cutting them down to size, so Apple’s iTunes Store was naturally in their sights.

Last year, Apple’s most visible EU regulatory problem was the switching costs created by its end-to-end control of the FairPlay DRM, and regulators’ attempts to force it to waive the competitive advantage to help latecomers. But the shift by Apple (and others) to DRM-free seems to be solving that problem.

Today Apple settled an older problem, about different prices within the EU between the Eurozone and not. Specifically, the gap is £0.79 UK and €0.99 in most of Europe, which at current exchange rates (€100 = £74.9) penalizes Britons by about £0.05. The AP claims it’s £0.09 but reporters are rarely good at math — this is probably an obsolete exchange rate.

Here’s what Apple said:

LONDON—January 9, 2008—Apple® today announced that within six months it will lower the prices it charges for music on its UK iTunes® Store to match the already standardized pricing on iTunes across Europe in Austria, Belgium, Denmark, Germany, Finland, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Sweden, Switzerland and Spain. Apple currently must pay some record labels more to distribute their music in the UK than it pays them to distribute the same music elsewhere in Europe. Apple will reconsider its continuing relationship in the UK with any record label that does not lower its wholesale prices in the UK to the pan-European level within six months.

“This is an important step towards a pan-European marketplace for music,” said Steve Jobs, Apple’s CEO. “We hope every major record label will take a pan-European view of pricing.”
The complaints of course came from British consumers who felt cheated. If the pound fell and Britons got better prices, would they complain too? Information goods lend themselves more to cross-border arbitrage of exchange rates than do cars or houses.

In addition to reducing intra-European transaction costs, a major goal of the Euro was to encourage crossborder price competition. I don’t quite get why Britons (who chose to keep another currency) are entitled to price parity with the Eurozone.

However, the fragmented nature of IP rights across Europe — with different copyrights, licensors, terms, etc. aligned to national boundaries — still remains. My news archives show concerns about this being the subject of a WSJ story back on Nov. 10, 2003. And the EC today acknowledged there are problems that remain beyond its ability to pressure Apple:
The Commission’s antitrust proceedings further allowed the Commission to clarify that there is no agreement between Apple and the major record companies regarding how the iTunes store is organised in Europe. Rather, the structure of the iTunes store is chosen by Apple to take into account the country-specific aspects of copyright laws.

The Commission is very much in favour of solutions which would allow consumers to buy off the iTunes' online store without restrictions, but it is aware that some record companies, publishers and collecting societies still apply licensing practices which can make it difficult for iTunes to operate stores accessible for a European consumer anywhere in the EU.
Frankly, (nominally) cheating British consumers 4p a song is small potatoes in both the context of the industry and EU industrial policy. The bigger unanswered issue is what will the recording industry’s business model be a decade from now? Particularly since the legal download business is anemic in Europe compared to the US.

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