p2p news / p2pnet: In a New York Times OpEd that reads rather like a puff release from Apple, Austan Goolsbee, professor of economics at the University of Chicago’s Graduate School of Business and a research fellow at the American Bar Foundation, takes an interesting look at France’s decision to compel Apple to “crack open the software codes of its iTunes music store and let the files work on players other than the iPod”.

There’s a tendency for media writers to confer nation-status on business entities ie, ‘RIAA’ instead of ‘the RIAA, ‘ ‘CRIA’ instead of ‘the CRIA,’ and so on, and in this instance, we have a country (France) doing open battle with a hard-core corporation (Apple) as though they’re on equal footing.

They’re not. But the immense financial and political power acquired by certain conglomerates (with Microsoft and the entertainment cartels to the fore) through dextrous manipulation of the mainstream media, makes them appear to have the same rights and strengths as actual nations.

While “seemingly minor,” France’s move to force Apple to do something it doesn’t want to do, “is actually rather startling and has left many experts wondering (as ever): What has possessed the French?” Goolsbee observes, continuing:

“More is at stake than just whether French teenagers can get Chimène Badi tracks at iTunes for 0.99 euro. The move may signify a willingness to question the patents, copyrights and trade secrets of other successful products as well, like electronics, pharmaceuticals, even fast food. Might we soon see a French legislator demanding to know if it is fair that customers of the French fast-food chain Quick cannot get its signature burger, Le Giant, with McDonald’s special sauce?

“In their fervor to free listeners from the shackles of their iPods, French politicians have abandoned one of the guiding principles of antitrust economics: penalize companies that harm consumers, not the ones that succeed by building better products.”

The “booming” online music business
Apple, “largely created the online market for legal music,” says the NYT OpEd. “The record labels’ own attempts flopped embarrassingly. Until iTunes, virtually no one paid for online music. Since then, iTunes has sold more than one billion songs. Its success comes largely from two crucial innovations.”

Actually, Apple hasn’t built a better product. It’s built a better hype-machine. And iTunes users, bless them, have inadvertently given power to the labels which are, ironically, in dispute with Apple because its boss, Steve Jobs, is wisely refusing to increase prices beyond the current $1 (or more, depending on where you are) per download.

The Big Four flaunt Apple’s apparent success without naming it per se. When the RIAA, or BPI or IFPI, or any of the other corporate-owned music industry ‘trade’ organizations talk about the “booming” online music business, they’re talking about iTunes alone.

And “more than one billion songs”? The number barely registers against what’s happening in the true world of online music.

Big Champagne is now pre-eminent among companies which gather and market statistics relating to music downloads, with special emphasis on p2p, and it says in the US alone, in February this year, on average, 6,978,098 people were simultaneously logged onto the p2p networks at any given moment, says p2p research firm Big Champagne.

The figure was 9,992,298 globally and during September, 2005, the average number of files available for download at any moment (average simultaneous files) was close to three billion – 2,789,154,393, to be precise.

Moreover, these statistics don’t take into account what’s happening on genuine music download sites such as AllofMP3.com, or on sites run by independent labels and artists.

These are rarely, if ever, cited by the mainstream media who instead typically reproduce Big Four releases as though they represent accurate information from reliable sources.

Bribery and download price fixing
After saying France’s Competition Council in 2004 ruled Apple’s refusal to share the iTunes codes didn’t harm consumers, Goolsbee goes on that the legislature, “paid no mind to such analysis and seems not to have considered innovation at all. Therein lies the danger”.

Apparently, Steve and Co largely created the online market for “legal” music and, “Until iTunes, virtually no one” paid for it.

However, there is no online corporate market, just as there’s no genuine corporate music service.

iTunes is a DRM-loaded iPod service which started out as a loss-leader and which now perhaps breaks even. But it certainly doesn’t represent, “online music”.

France’s Vivendi Universal, EMI (Britain), Sony BMG (Japan, Germany) and Warner Music (US), all of whom are under federal and state investigation in the US for bribery and download price fixing, among other things, have spent, and continue to spend, billions of dollars trying to create online music businesses through which they can channel ‘product’. The likes of iTunes and RealMusic and Napster were meant to be the means.

The Big Four are also trying to sue their own customers in France, the US and elsewhere into buying low-quality, high-priced downloads and in Canada, leading musicians are spear-heading a movement which could easily gain hold with other performers around the world.

Meanwhile, as Goolsbee says, virtually no one pays for online music.

But that isn’t because there are hundreds of millions of file-sharing thieves and criminals on the loose, as the Big Four maintain. It’s because the vast majority of online music lovers are simply unwilling to pay $1 and more for lossy digital files worth no more than 25 cents each, tops.

The Big Four who, lest we forget, have (again) been charged with price fixing, wholesale their offerings at between 60 and 85 cents for each file. So the tiny handful of companies such as iTunes, RealMusic and Napster which, to all intents and purposes, represent the entire corporate online music business, are forced to charge well above the odds to even maintain a pretence of being in business.

Free? Hardly.
Meanwhile, Goolsbee refers to iTunes as though it’s a genuine music ’service’ rather than a means of servicing iPods.

“First, Apple’s music store is simple and works extremely well with the iPod,” he says. That’s true. Unfortunately, however, Apple downloads are locked up tight with the fantastically misnamed FairPlay DRM system. iTunes files are for iPods alone, which is France’s point.

“Experiences with other players and music stores are far more complicated,” he states unequivocally. This is, of course, utter nonsense. Ask anyone who uses any of the other mp3 players, or who downloads from AllofMP3.com, for instance.

“Further, iTunes keeps getting better,” he goes on. “Apple has added video capability, celebrity play lists, exclusive music, the ability to convert home movies into iPod format, and many other features – all free.”

Free? Hardly. Apple is no different from any other large company. It doesn’t give away free lunches. Everything has a price tag, although it may be well hidden.

“Second, iTunes has lots of music. Largely because of the innovative iTunes FairPlay copy protection and digital rights management software, Apple persuaded major record labels to let them sell much of their best content online. The combination of simplicity and variety proved a huge winner.”

More nonsense.

But now, “If the French gave away the codes, Apple would lose much of its rationale for improving iTunes,” says the article. “Right now, after the royalty payment to the label (around 65 cents) and the processing fee to the credit card company (as high as 23 cents), not to mention other costs, Apple’s margin on 99-cent music is thin. Yet it continues to add free features to iTunes because it helps sell iPods. Opening the codes threatens that link. Apple would need to pay for iTunes features with profits from iTunes itself. Prices would rise. Innovation would slow.”

Actually, it wouldn’t, and doesn’t, make a blind bit of difference. Innovation continues, in spite of Apple and the Big Four Organized Music labels.

“Even worse, sharing the codes could make it easier for hackers to unravel Apple’s FairPlay software,” states the NYT editorial. “Without strong copy protection, labels would not supply as much new music. Indeed, Apple argues that sharing the codes could make the pirates’ job easy enough to wipe out the legal market. Agitators might claim that this is the very goal of the French bill: why else would it also reduce the maximum fine for consumers caught illegally downloading music from 300,000 euros (about $371,000) to just 38 euros (less than $47)?

“Sharing the iTunes codes would undermine the two innovations that Apple used to create the online market for legal music in the first place. With France accounting for only 5 percent of iTunes sales, Apple would probably shut down iTunes in France rather than give up the codes.”

Goolsbee goes on to quote B. Zorina Kahn, an economic historian at Bowdoin College in Maine, as someone else who, “finds the French move puzzling”.

He has Kahn saying, “In the past, France has been the global leader in enforcing strong copyrights.” Usually, rich countries don’t meddle with others’ intellectual property because they fear retaliation. So why don’t the French fear retaliation now?

“One reason may be that they have concluded France will never really compete,” Goolsbee adds. “If the Internet will always have an American accent, why not go after it? Sometimes, the red flag of revolution is surprisingly hard to distinguish from the white flag of surrender.

“The other reason, though, could be that the French politicians simply did not consider the possibility that other countries might retaliate against the intellectual property of French companies. The heads of several French biotechnology, telecommunications and electronics companies are probably starting to fidget.

“The fate of France’s budding intellectual property revolution now rests with the French Senate, which will decide in the coming days whether to proceed. Before declaring pre-emptive war on iTunes, however, perhaps the French would do best to remember a lesson from 1789. Sometimes the very people calling for revolution are the ones who end up losing their heads.”

Also See:
New York Times – In iTunes War, France Has Met the Enemy. Perhaps It Is France, April 27, 2006
spear-heading a movement – ‘Fans who share music aren’t thieves’, April 26, 2006

This entry was posted on Thursday, April 27th, 2006 at 8:34 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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