Why Apple Doesn’t Like the French: Bill Passes to Open iTunes

A bill that would open up music-playing technology and tunes to compatible players threatens Apple’s domination in the online market. The French law that would push Apple Computer to make the iTunes playable on devices that compete with the iPod passed through France’s lower house of parliament Tuesday and now moves to its senate.
Apple issued a response statement Wednesday: “The French implementation of the EU Copyright Directive will result in state-sponsored piracy. If this happens, legal music sales will plummet just when legitimate alternatives to piracy are winning over customers. iPod sales will likely increase as users freely load their iPods with ‘interoperable’ music which cannot be adequately protected. Free movies for iPods should not be far behind in what will rapidly become a state-sponsored culture of piracy.”
Under the French law, digital content providers must share details of their rights management technologies with rivals. iTunes, which are protected under Apple’s FairPlay DRM technology, would be downloadable onto alternate devices if the bill passes into law.

DRM technologies are meant to establish the ground rules under which consumers can use the music. They limit the number of copies the user can make (to one or more computers), the number of portable players to which the songs can be copied, and how extensively sharing can occur.

CNET.com reported that Gene Munster, senior analyst for Piper Jaffray, said Apple could choose to withdraw iTunes from the French market rather than change its business. “We believe Apple is more likely to drop out of the French market than open up its FairPlay DRM to allow iTunes to play on competing MP3 players,” he wrote. “While this sounds like a drastic move, we believe it would not materially impact business. We estimate that approximately 20 percent of iPod and iTunes sales occur outside of the U.S. The French market alone is likely less than 2 percent of iPod and iTunes business.” Also according to CNET, an Apple spokesman said he could not comment on what action Apple might take if the measure becomes law in France.

A report from BusinessWeek said that other companies besides Apple will suffer the effects of the law. “Sony and Microsoft could feel the effects of the French law as well. All three use proprietary technology for digital rights management, the protection of content against unlawful copying. In the longer term, though, the French legislation is a warning shot for the music business.”
Not only could the European Commission question Apple’s monopoly, but other countries could also pass similar laws.

BusinessWeek also reported Wednesday that Apple’s stock was down $2.18, more than 3%. “Apple doesn’t break out iTunes or iPod sales by region, but reported a $174 million operating profit on sales of $1.2 billion for its European division in its most recent quarter. It has sold 14 million iPods worldwide.”

On Tuesday, two deputies from the ruling Union pour Movement Populaire (UMP), the party behind the legislation, issued a statement stating they hope other countries in Europe will follow the French example. “These clauses, which we hope will be taken up by other countries, notably at the European level, should prevent the emergence of a monopoly in the supply of online culture.”

BusinessWeek source Francois Laugier, a lawyer with the San Francisco law firm Ropers Majeski Kohn and Bentley said, “Apple’s best allies in any fight against this law may lie with French Socialist and Communist legislators who may oppose the law simply for the purpose of opposing those who favor it.”

“If it passes the Senate,” Laugier said, “there are members of those parties who have suggest that they would like to take the law to the Conseil Constitutionnel, or the constitutional council, the highest legal authority in France on matters relating to constitutional law. I’d start lobbying the politicians who favor bringing it before the council. The provisions of this law that affect Apple are actually very small, and the council might strip them from the bill, or modify them.”

Whatever Apple decides to do with its French connection, it definitely does not favor any provision that would cause its monopoly to crumble.