European Commission deadline looms over Apple

[AppleInsider]

The European Commission said this week that Apple has yet to respond to its concerns over anti-competitive pricing of songs on its iTunes Store, despite a midnight deadline on Monday.

At the heart of the executive body's complaint, which was lodged back on April 3rd, was the nationalized approach to the online music shops that are restricted only to buyers who hold accounts in given countries.

Shoppers are often forced to buy only from their home store, preventing them from earning the best rate. British shoppers are particularly hurt by this, the European Commission said, as the 79p song downloads were the most expensive across the whole region.

An executive for the European Commission confirmed to Thomson Financial that its charges do not allege Apple is in a dominant market position. The matter also does not concern Apple's use of its proprietary Digital Rights Management (DRM) technology on songs sold through its European iTunes shops.

For its part, Apple has claimed no wrongdoing and asserted that it had been pressured into using only localized stores by the major recording labels.

"Apple has always wanted to operate a single, pan-European iTunes store, accessible by anyone from any member state," an Apple's spokesman previously told the press. "But we were advised by the music labels and publishers that there were certain legal limits to the rights they could grant us. We do not believe the company did anything to violate EU law, and we will continue to work with the EU to resolve this matter."

According to Thomson Financial, the commission can fine companies up to 10 percent of their annual worldwide turnover for breaching EU antitrust rules.

[ View this article at AppleInsider.com ]

[kresh]

Come on Kasper. These Digg-its are annoying.

It's board spamming pure and simple. It almost makes one want to just wait until AppleInsider's content shows up on MacRumors to read about it.

[Charko]

The European Comission had better weigh its words and actions carefully. They're dealing with a special group here - the European Apple faithfull.

If they don't play fair we shall storm their citadels in Brussels and Strasbourg and DESTROY THEM!

[Charko]

OK, try 'faithful' with one 'L'

[Kasper]

Originally Posted by kresh

Come on Kasper. These Digg-its are annoying.

It's board spamming pure and simple. It almost makes one want to just wait until AppleInsider's content shows up on MacRumors to read about it.

OK. This is not the proper forum to be discussing this matter. However, in an effort to get the conversations here back on track, here's the deal with the diggs:

I for one am not a big fan of digg. I believe its algorithms and methods to be seriously flawed and easily manipulated. Genuinely decent stories are often overshadowed by craftily-titled rants and rumors. Additionally, the first publication to break a story is often not the one left standing in the end. The rush amongst 'publishers' to 'digg' things in a hurry, I believe, also has an adverse affect on quality. And, as we've just seen, it's also disrupting online communities such as this one.

On the other hand, digg remains popular. While I've stopped using it, millions of others do. And should AppleInsider not participate -- in some way -- its stories would easily be picked up (rehashed) and dugg by another publication. So it's kind of a catch 22. Therefore, if Andrew feels like taking the time to submit the diggs, then post the links, I don't think that should be grounds for banning.

HOWEVER, going forward, we'll require that users posting digg links to AI articles also contribute to the discussion alongside the links (in the same post). Users can also continue to make posts with just the digg link if they so desire, but those posts will be deleted relatively quickly and the associated digg link moved up into the AppleInsider source posting as was the case in the past.

This way, users are free to post digg links but can't increase their post count and annoy other community members in the process.

Fair?

Best,

K

[nagromme]

The EU knows this isn't Apple's choice--they've even said so. The labels dictate this. And the labels may even be telling the truth that prior legal agreements REQUIRE the multiple stores.

I don't know whose bluff this is to call--but it's not Apple's.

[EagerDragon]

Well Apple needs to officialy respond, otherwise they can get nasty and bring the whip out. Then again they may like it.

[kenaustus]

All Apple really has to do is submit what they have said in their news releases and advise the EU that they will be happy to make a change as soon as the EU gets their act together.

Not a difficult task, but probably a very difficult task for the EU as a lot of agreements will probably be before the start of the EU.

[coffeetime]

If the EU really wants to do some good for mankind, they should leave this ticky-tacky iPod/iTunes stuff alone and focus on something really worthwhile. For instance, all member countries should have to comply with providing actual flusing toilets! (hint: the next time you go to, say, Italy, keep track of all the hole-in-the-floor-with-broom-accessory toilets they have).

[kresh]

Originally Posted by Kasper

OK. This is not the proper forum to be discussing this matter. However, in an effort to get the conversations here back on track, here's the deal with the diggs:

I for one am not a big fan of digg. I believe its algorithms and methods to be seriously flawed and easily manipulated. Genuinely decent stories are often overshadowed by craftily-titled rants and rumors. Additionally, the first publication to break a story is often not the one left standing in the end. The rush amongst 'publishers' to 'digg' things in a hurry, I believe, also has an adverse affect on quality. And, as we've just seen, it's also disrupting online communities such as this one.

On the other hand, digg remains popular. While I've stopped using it, millions of others do. And should AppleInsider not participate -- in some way -- its stories would easily be picked up (rehashed) and dugg by another publication. So it's kind of a catch 22. Therefore, if Andrew feels like taking the time to submit the diggs, then post the links, I don't think that should be grounds for banning.

HOWEVER, going forward, we'll require that users posting digg links to AI articles also contribute to the discussion alongside the links (in the same post). Users can also continue to make posts with just the digg link if they so desire, but those posts will be deleted relatively quickly and the associated digg link moved up into the AppleInsider source posting as was the case in the past.

This way, users are free to post digg links but can't increase their post count and annoy other community members in the process.

Fair?

Best,

K

Fair enough, thank you.

[shamino]

If the EU doesn't like what Apple is doing, then perhaps they should crack down on all other country-exclusive contracts in the retail business, like the ones used by record labels to restrict CD distribution.

[anantksundaram]

This is something Apple needs to fix. Period. Many parts of the EU think of themselves as one. They transact in the same currency and pay roughly similar prices for many "world" products.

This should be so easily do-able on their website with some software fixes.

Indeed, as a US buyer, there are some bands/tracks offered in the EU -- and not in the US -- that I'd like to be able to purchase too. As a global company selling a world product, Apple has to figure out how to leverage its technological brilliance to make the iTunes store a truly borderless shopping experience. Apple will have to sacrifice some margins in the process, but it's inevitable. Such pricing pressures are affecting all companies globally, and Apple is not immune to it. O/w they are going to get hit with stuff like this.

Knowing fully well that predictions are cheap, I think Apple will lose this one of they choose to fight it.

[ascii]

Originally Posted by Kasper

its stories would easily be picked up (rehashed) and dugg by another publication.

Macrumors = King rehasher

[Charel]

The EU singled out Apple iTunes, because of the price difference between the UK and the Euro zone countries. They are not at all concerned with single market issues on the internet. It is common for sites to limit sales to their country only. They simply refuse to deliver to addresses in other countries.

The problem for Apple is indeed the restraints put on them by content providers. If not, I would be able to purchase video and sound content in the US or in an EU wide iTunes store. After-all, I would have paid the copyright price just like any local customer.

In my opinion it all comes down to greed.

[@homenow]

Originally Posted by Charel

The EU singled out Apple iTunes, because of the price difference between the UK and the Euro zone countries. They are not at all concerned with single market issues on the internet. It is common for sites to limit sales to their country only. They simply refuse to deliver to addresses in other countries.

The problem for Apple is indeed the restraints put on them by content providers. If not, I would be able to purchase video and sound content in the US or in an EU wide iTunes store. After-all, I would have paid the copyright price just like any local customer.

In my opinion it all comes down to greed.

The problem with that as I understand it is that the company that owns distribution rights in one country may not own them in another for the same content. Given this they cannot legally sell that content in the country which they do not own distribution rights. So, as a "retailer" Apple has to get contracts with the company that owns the distribution rights for the content in each country that they sell content in. Some of these might only be different divisions of the same company, but they still have to get the contract made with the UK branch as opposed to the US branch of that company. It may be very possible that there are other legal reasons as well. I'm sure that Apple would gladly set up one global iTMS with the same content available everywhere at the same time. Look at all the potential sales they have lost out on in Europe in not being able to offer their US video offerings, which quite possibly could equal or surpass the US sales for TV shows that are not available in the same timeframe in the EU as they are in the US.

[anantksundaram]

Originally Posted by @homenow

The problem with that as I understand it is that the company that owns distribution rights in one country may not own them in another for the same content. Given this they cannot legally sell that content in the country which they do not own distribution rights.

Gee, isn't that what good software design is supposed to deal with? All it should take is an extra step in the buying process that checks (before purchase) whether that particular track has distribution rights in the country from which it is being purchased.

Also, what if someone is traveling to a country in which there are distribution rights, and would like to purchase within what is "legal" territory. Why shouldn't that be allowed?

[ajmas]

Originally Posted by shamino

If the EU doesn't like what Apple is doing, then perhaps they should crack down on all other country-exclusive contracts in the retail business, like the ones used by record labels to restrict CD distribution.

The issue here is not so clear cut. If I am in the UK and see something on the FNAC website (French seller), then I can buy it and they will send it to me. Trying something equivalent on the Apple store is not so easy. In many ways this case may be seen as a test case to ensure that these issues get resolved and end up showing that it can be done.

The trade agreements in the EU are very different to NAFTA. NAFTA provides advantages for companies, but nothing for your individual. The EU ensures that the trade borders are also non-existent for the buying customer, thus allowing the individual to buy the product from where ever he or she may happen to be. This is in place to ensure that there is no price fixing by an one company and ensures that the only differing factor are local taxes. Since in the taxes are charged where the company is located, the customer can technically buy the same product from an EU country where sales taxes are less.

One of the main problems with the distribution models used by record companies, is that distributors in the various countries usually have exclusive deals for the territory. I also believe that distributors are often the manufacturers of the physical media, and localise the presentation, so this model works because it ensures that multiple distributors aren't confusing the local market with multiple copies of the same disc. As music becomes less associated with physical media, then current distribution models start seeming less relevant, yet these contracts have already been signed. If change needs to be forced, then the EU could force a law through that could force record to change their distribution model, yet until that happens the record companies are quite happy with the way things are currently. In an ideal world record companies would chalk up two contracts, one for online distribution, which would be EU wide and another for physical media which would be country specific. Only time will tell in what direction things go.

[shamino]

Originally Posted by anantksundaram

This is something Apple needs to fix. Period. Many parts of the EU think of themselves as one. They transact in the same currency and pay roughly similar prices for many "world" products.

This should be so easily do-able on their website with some software fixes.

Indeed, as a US buyer, there are some bands/tracks offered in the EU -- and not in the US -- that I'd like to be able to purchase too. As a global company selling a world product, Apple has to figure out how to leverage its technological brilliance to make the iTunes store a truly borderless shopping experience. ...

You make it sound like Apple wants to restrict what you're allowed to buy.

Apple would love to sell everything to everybody. I'm sure they'd be overjoyed if they could get rid of all the administative overhead that goes with running a separate web store for each country.

Unfortunately, they don't have that choice. Apple doesn't hold the copyright on any of their songs. As such, they can on sell what and where the copyright holders (that is, the record labels) authorize. If they violate these "agreements", then the labels can withdraw their catalogs.

The same goes for pricing. The labels demand prices proportional to what they get from CDs. In a country where they charge more for physical media, they are going to demand more from Apple. Apple makes an incredibly thin margin on iTunes sales in the US. They'd take a huge loss if they sold to the UK at US prices, since they'd still have to pay the record labels the same UK-priced royalties.

And we haven't even touched the matter of taxes, which vary greatly from country to country. Is Apple suppose to just eat them? Or perhaps raise the prices on everybody else so nobody feels left out?

You're right, this is a bad situation for consumers, but the change has to come from the labels. The EU suing Apple is just silly. That's like suing your local Ford dealership because the MSRP is too high. There is nothing Apple can do. If they are sued and lose, then their only choice will be to shut down the iTunes stores in the EU, and who will that help?

Originally Posted by ajmas

The issue here is not so clear cut. If I am in the UK and see something on the FNAC website (French seller), then I can buy it and they will send it to me. Trying something equivalent on the Apple store is not so easy. In many ways this case may be seen as a test case to ensure that these issues get resolved and end up showing that it can be done.

And any major retailer who makes a business doing this will quickly find themselves without a supply of CDs to sell. That's the point of exclusive distribution contracts.

Apple is not the one setting the royalty prices, they're not the ones charging the taxes.

The only way to make everybody equal is to make them all equally bad. If the UK store costs more than the French store and Apple is sued, then the result will be that the prices in the French store will go up, because Apple's costs (imposed by the record labels and governments) won't be going down.

Originally Posted by ajmas

One of the main problems with the distribution models used by record companies, is that distributors in the various countries usually have exclusive deals for the territory. I also believe that distributors are often the manufacturers of the physical media, and localise the presentation, so this model works because it ensures that multiple distributors aren't confusing the local market with multiple copies of the same disc. As music becomes less associated with physical media, then current distribution models start seeming less relevant, yet these contracts have already been signed. If change needs to be forced, then the EU could force a law through that could force record to change their distribution model, yet until that happens the record companies are quite happy with the way things are currently. In an ideal world record companies would chalk up two contracts, one for online distribution, which would be EU wide and another for physical media which would be country specific. Only time will tell in what direction things go.

... and until that happens, attacking the retailers for passing their costs on to consumers is just a complete waste of time. Nobody will benefit from this action. Not the consumers, not Apple, not the record labels, and not even the governments. There will simply be higher prices all around for no reason other than the need to satisfy the letter of a poorly-written law.

[anantksundaram]

Originally Posted by shamino

And we haven't even touched the matter of taxes, which vary greatly from country to country. Is Apple suppose to just eat them?

VAT is the same in many EU countries (or just marginally different). And, every one of the other points you raise can easily be addressed with some decent software design.

I don't begrudge Apple trying to make an extra buck (I am a shareholder too). It is just that, I think they may lose this one if it went to court. I am only suggesting that this is something Apple should -- and can -- get in front of.

[shamino]

Originally Posted by anantksundaram

VAT is the same in many EU countries (or just marginally different). And, every one of the other points you raise can easily be addressed with some decent software design.

I don't begrudge Apple trying to make an extra buck (I am a shareholder too). It is just that, I think they may lose this one if it went to court. I am only suggesting that this is something Apple should -- and can -- get in front of.

Apple says that they are charging different prices because they have different costs doing business in different countries.

You say they're lying and are raking in extra profits from those countries and should be punished for it.

Since neither one of us has any proof beyond what we've already read in the press, there's really no point to arguing this any further. I'll just say that I trust an Apple press release over anything said by a politician.

[anantksundaram]

Originally Posted by shamino

Apple says that they are charging different prices because they have different costs doing business in different countries.

You say they're lying .....

Stop making stupid, unwarranted attributions. I said no such thing. Companies price-to-market across the world for a whole host of reasons including different consumer preferences and willingness-to-pay, not just costs. And even if it is costs, a company has to prove it to regulators (who have a duty to follow up on consumer complaints), not just assert it. And, in the process of arguing a case like this, Apple will have to end up revealing a great deal about its pricing strategy, which it may not want to.

And, please point to a link where Apple says it is because of costs?

[shamino]

Originally Posted by anantksundaram

Stop making stupid, unwarranted attributions. I said no such thing. Companies price-to-market across the world for a whole host of reasons including different consumer preferences and willingness-to-pay, not just costs. And even if it is costs, a company has to prove it to regulators (who have a duty to follow up on consumer complaints), not just assert it. And, in the process of arguing a case like this, Apple will have to end up revealing a great deal about its pricing strategy, which it may not want to.

And, please point to a link where Apple says it is because of costs?

Getting personal are we?

As for a link, here are a few of the first search hits:
http://news.bbc.co.uk/2/hi/business/6522429.stm

Apple denies that it has broken any laws, arguing that it would like to operate a single European site without any limits on content or access for all music fans.

But it says it is "hemmed in" by a series of commercial agreements with leading record companies which supply its content under certain copyright provisos.

Apple said the rights contracts it had negotiated came with "certain legal limits", essentially dictating what material can be sold in what countries.

and
http://news.bbc.co.uk/2/hi/business/3658200.stm

... But Apple defended their UK pricing policy.

"The underlying economic model in each country has an impact on how we price our track downloads," an Apple spokeswoman told BBC News ONline.

"That's not unusual - look at the price of CDs in the US versus the UK. We believe the real comparison to be made is with the price of other track downloads in the UK."

Apple is bound by the record labels' exclusive distribution contracts. These contracts mandate prices and the local governments dictate taxes.

The only way they could make every country's store identical would be to reduce the iTunes store's selection to the subset of tracks that are licensed everywhere, and to raise the price to equal the highest single-country price. And if they decided to sell tracks at a loss (although I can't imagine why they'd want to do that), they'd be sued for "dumping" product.

European lawmakers have created a no-win scenario for Apple. No matter what they do, they're going to be facing a never-ending barrage of lawsuits. I'm quite surprised they haven't decided to give up and just close the European stores. I certainly wouldn't want to do business in a place where I'm not welcome.

[anantksundaram]

Originally Posted by shamino

Getting personal are we?

Yes. Because you should not casually accuse people of saying someone is "lying" when they did not. That is stupid ( in case you didn't notice, that was bolded, italicized, and underlined), and immature.

Especially when neither story you trotted out -- which happen to be BBC reports, rather than Apple's statements -- has an iota of reference to Apple claiming something about "different costs of doing business in different countries" that you said Apple claimed in response to this suit. Even the BBC reports talk about everything but what you said, if you read through it (including the snippets you seemingly desperately tried to conflate with your claim).

And, assuming Apple said that about US versus UK, that is irrelevant, since the US is not part of the EU.

I think you should: (i) go back and read what I said, and (ii) tell me where in a press release Apple claimed (backed up with some reasonable facts) that the cost of doing business in different countries in the EU were so radically different that they contributed to price differences they were compelled to charge that attracted the attention of competition authorities.

I'll assume you will not bother.