Apple’s Trip to Rejavik

Today Apple meets with Scandinavian Consumer Ombudsman groups to try to thrash out a solution to the very public spat between the two sides. The disagreement has been pretty heated and has included the release of a supposedly confidential 50 page letter from Apple to the Norwegian authorities.

The Nordics are of the opinion that Apple is not prepared to withdraw its iTunes Music Store from the region. I wouldn’t be so sure. Of course Apple would prefer to stay, but the Nordics perhaps have an over inflated opinion of their importance. They may be Europe’s most sophisticated region but they only account for 13.4 million Internet users (just seven percent of the Western European total) and total digital music revenues in the region total just 23 million Euros out of a European total of 192 million Euros. I think it unlikely that Apple will leave the market, however they will absolutely consider it if they are unable to reach a satisfactory settlement. They stated they considered the possibility of leaving the French market which is a lot more important to them.

The whole saga is big and messy and has numerous facets, many of which involve legal interpretation. But as we’re not lawyers at Jupiter (nor financial analysts for that matter) so I’ll stick to hypothesising on the strategic parts of this.

In very simple terms the dispute can be grouped into two key areas: those that Apple won’t back down on, and those onw which Apple will be willing to cede some ground. And the former includes numerous aspects which are either completely irrational in the context of digital music, or are equally applicable to many other targets in addition to Apple.

Group one: Features that they won’t back down on

– Digital Rights Management. Apple will not drop DRM from their offering because a) the labels won’t let them and b) the particular model that Apple uses (i.e. the Fairplay enabled closed iPod / iTunes ecosystem) is key to their current business model

– The cooling off period – this is just plain ridiculous in the context of music. IF this were implemented all people would do is download from iTunes, burn to CD and then ‘cool off’ and ask for their money back, with the music safely stored on CD and potentially ripped back into their iPod.

– Geographical restrictions: this is only partially in Apple’s controls. Record labels like to keep territories clearly defined and not have ‘leakage’. Just look at the parallel import restrictions that the industry operates for CDs and the action taken against CD-Wow.

Group Two: Features that Apple should be willing to negotiate on

– The possibility to change usage rights of the music after the consumer has purchased the file.

– The ability of consumers to sue for damages should they suffer as a result of Apple’s software causing exploitable holes in the operating systems on their computers.

All of the points that are raised are equally applicable to all other digital music stores, and the ombudsman even recognises this with an afterthought of an addition at the end of the complaint stating that the other digital music vendors in Norway also have “similar terms and conditions [and should] be investigated.”

But it’s not just the other music services that should be considered. What about the games console market? There is absolutely no interoperability between Playstations, XBoxes and GameCubes. If interoperability is such a sacred consumer right then why aren’t the Nordics (or for that matter the French) taking action against Sony et al?

Apple has become a victim of it’s own success. Hopefully reason will float to the surface.

And whilst on the subject of Apple, the company agreed last night to pay Creative 100 million dollars in a patent dispute settlement. However, it seems that Apple have come out of this in a pretty strong position:
a) 100 million is a relatively small price to pay compared to iPod sales revenues
b) the settlement removes uncertainties over future business
c) as part of the deal Creative will now produce iPod accessories…..isn’t that an acceptance of defeat by Creative? It’s a bit like a knight defeated in battle being given the right to polish the armour of his vanquisher.