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BBC TwoNewsnight
Last Updated: Friday, 24 March 2006, 18:36 GMT
Apple's core problem with France

By Adam Livingstone
Producer, BBC Newsnight

Why might Apple hate the French parliament so much this week? It's hard to explain, so bear with me a moment.

iTunes
The French law would stop Apple limiting what people can do with tracks they have bought
Ever wondered why a DVD movie costs 15 pounds in a shop but you can download music for a few pence off iTunes? Well it's obvious, isn't it? DVD has pictures. Pictures cost more to make so you have to pay more.

Well OK then, if that's true, how come you can get a brand new DVD player on the internet for 20 quid but an iPod portable music player will cost you a princely 219? Is it really 10 times more sophisticated? Perhaps not. Welcome to the hardware/software war.

The way it works is this. If you are a software maker, you are a peddler of pure information. That information might be music, or video, or a computer programme or a story or anything else that can be squeezed down a phone cable. If you are a hardware manufacturer, you might make computers, or DVD players, or iPods or telephones or any other bit of kit needed to play the software. Josephine Public needs both hardware and software together to get her fix of opiate infotainment.

Money and music

And that's where the problems start. Because if you're Apple computers, you'll make more money by selling the iPods expensive and the music cheap. But if you're (say) Vivendi Universal, you don't get a slice of Apple's hardware sales. So you want the iPod to be cheap enough that the punter buys into the technology but then spends the bulk of his money on downloading the music itself at a decent price.

The poor music execs have had to cut down on the white powder deliveries by some margin - and for that they have the Internet and themselves to blame
Now if you make either hardware or software you have the same two choices here. In a small controllable market you can sit down with your opposite number and work out a system that lets both of you make a profit. That might be illegal sometimes, but I'm sorry to say it has been known to happen anyway. Or you can let capitalism, red in tooth and claw, find a winner out in the jungle.

Which brings us back to iTunes. Apple's fantastically successful music download service has been selling tracks by the billion to the public for three years now at low prices. The chaps from Silicon Valley have been making a pile of cash selling their iPods off the back of this while the poor music execs have had to cut down on the white powder deliveries by some margin. And for that they have the Internet and themselves to blame.

A quick history lesson

The billion dollar music download industry was spawned in the garage of a teenager called Shawn Fanning, just six years ago, when he dreamed up Napster, the very first mass peer to peer file sharing system.

Jacques Chirac
What's on Jacques Chirac's iPod?
Napster had millions of people downloading music even before broadband got here, and because in those days it relied on piracy, the music was free and easy to download in the universally available format we now know as MP3.

This was great news for Apple. They made a portable MP3 player, and the queues of customers in Apple stores with peg legs, parrots on their shoulders and who said "auuurgh Jim lad" rather a lot soon stretched around the block.

But if sales were built on the back of their customers' piracy, that was hardly Apple's fault. The fact that there were few strictly legal ways of filling an iPod with MP3 music was embarrassing but ultimately beside the point. The record companies were bleeding money to the pirates and Apple was cashing in.

Digital landscape

Yet the music industry was painfully slow to introduce legal music downloading, allowing the pirates and the techies a free hand to shape the assumptions that would govern the new digital landscape. Apple had already won the hardware/software war while the music men were still sunning themselves like crocodiles by their Beverley Hills swimming pools.

So when Apple finally offered to sell music online themselves, the befuddled record companies had no option but to try and claw back a few millions into the bank instead of the nothing they were currently making online.

Downloaders were by then so used to paying nothing for their music that the most that could be charged for the time being was next to nothing, and that suited Apple just fine. The music men had little choice but to go along with it, lick their wounds and bide their time. If the public could be weaned off mass piracy, the industry might then at least have some kind of digital future.

Keeping a competitive advantage

The problem for Apple now though is that there are lots of clever people in eastern lands churning out those 20 pound DVD players who have realised they can do the same trick with MP3 players that work just like iPods, only theirs would be a lot cheaper than 219.

Mini IPods
Will Apple have to pass on its DRM secrets?
Worse still, mobile phones are now packing more processing power than the US space programme and their manufacturers want a piece of the MP3 action too.

So how do Apple keep their competitive advantage? Their best answer is something called Digital Rights Management. They sell music online, but it isn't sold in that universal MP3 format so beloved of pirates.

iTunes music is only playable under an Apple license, and then only by the person who pays for it. In other words iTunes is 80 per cent of the legal download market but only hardware blessed by Apple can play it. So unless you want to burn it back to the old technology that is the CD, that almost always means an iPod.

But iPods don't play the digitally protected formats used by other legal download services, so if you have an iPod and you're law abiding then you're locked into iTunes. It's a virtuous circle for them, but a vicious one for their competitors.

French legislation

In this brave new world of DRM, Apple gets to keep Blackbeard and his merry band of cut-throats under the vaguest semblance of control, put one over on the Asian hardware invasion, keep Nokia off their lawn, and carry on selling lots of their own silicon at high prices. Game set and match to American designer electronics.

Hollywood may be free to charge what they like for video. Microsoft might rule the computing roost. But in music, those chaps with the screwdrivers literally call the tune, and the software makers can go whistle.

Which was all very nice for them until this week when the French Parliament went and passed a law banning all such proprietary formats. If the legislation passes the French upper house in May then Apple will have to share its DRM secrets with everyone else so that their rivals can use the iTunes formats themselves.

But once they do, will anyone ever again pay 200 pounds for an iPod?

Which is why Apple might hate the French Parliament this week and why they could very well boycott the entire country before they ever comply with this law. And, stay or leave, if you listen carefully, can you hear the sound of French record company executives rubbing their hands in glee?


I'm told that Apple fans are well known, some would even say notorious, for their vigorous defence of all things Apple and highly sensitive to offensive depictions of their religion.

In response to the many replies we got, a few points:

The legality of ripping CDs to your iPod as "fair usage" is disputed by the Recording Industry Association of America, who lead the charge in such matters (though their members have been inconsistent on the point in the past). So it is accurate to not classify the practice among the "strictly legal" as the question isn't resolved. But that doesn't mean CD rippers have got the consent of copyright holder for their copying.

Playing iTunes on a PC or Mac is a software solution in a hardware debate and not a substitute for a mobile hard disk player like an iPod, which is why you don't see many people listening to their PC on the train. You can play iTunes on a Motorola phone, but that is under an Apple license limiting them to a maximum of 100 tracks (50 in some parts of the world). So again, not a true substitute for an iPod.

iTunes pricing - here's a recent quote from Apple CEO Steve Jobs: "We're trying to compete with piracy - we're trying to pull people away from piracy and say, 'you can buy these songs legally for a fair price'. But if the price goes up a lot, they'll go back to piracy. Then, everybody loses... So if they (the music labels) want to raise the prices, it just means they're getting a little greedy".

The basic bog standard iPod costs 219 according to the UK Apple website. Reduced capacity versions like the Nano and the Shuffle cost less.

An iPod does play lots of formats, but they're mainly digitally unprotected. So, for example, it would play an MP3 taken off a pirate's BitTorrent. But it wouldn't play a digitally protected WMA file taken legally from the now legitimate Napster download service.



SEE ALSO
Apple attacks plan to open iTunes
22 Mar 06 |  Technology
French MPs vote to open up iTunes
21 Mar 06 |  Technology
New debate for French piracy law
08 Mar 06 |  Technology

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