EMI's Rejection of DRM May Help Apple Overcome Its European Woes

For his part, Jobs and Apple are keen to see the rest of the industry follow EMI’s lead, and he called EMI’s decision to sell DRM-free music a "step forward for the music industry." Jobs’ enthusiasm is due, in part, to three major challenges Apple faces from consumer watchdog groups against its iPod/iTunes businesses in Europe:

1. The FairPlay/closed system issue. The EMI announcement resulted in a significant PR win for both Apple and EMI, as the Norwegian Consumer Council had sought—via government intervention—to force Apple to move to interoperable music standards. While AAC in its non-DRM state can be played on multiple players outside of Apple’s control, the fact that Apple has chosen not to license its FairPlay DRM to music labels or other mobile media player manufacturers effectively creates a "walled garden" where songs purchased on the iTunes store will only play on iTunes installed on Mac and Windows desktops and Apple’s iPod portable music players. Pressure on Apple has ratcheted up in recent months, as consumer rights organizations from all across Europe, including Germany, France, Finland and Norway, have recently agree to a joint position in their complaint against FairPlay’s lack of interoperability.

2. According to a recent Financial Times article, Apple and several major music companies had been sent a "statement of objections" by European Union regulators. This letter addresses the business agreements used by Apple and its partners for the iTunes stores in Europe. iTunes prohibits users in one country from downloading music from a website intended to serve another country, and regulators feel this arrangement—at a time when the EU is removing barriers to the movement of goods and services across borders for EU countries—might violate competition rules.

3. To add to the EU’s dislike of the competition rules, Apple is facing charges of arbitrary pricing across different EU countries—between the EU and the UK—that have long had pricing differentials for music delivered on traditional mediums such as CDs. Apple faces a fine of more than $600 million on the European Commission’s formal objection to the higher prices it charges to download music from iTunes in Britain compared to the rest of European. Apple charges 79 pence in Britain for a song and 99 euro cents in Europe, a difference of about 12 pence, given the UK pound’s stronger value. Even on the DRM-free songs EMI announced today, Apple will still make 12 pence, as the DRM-free songs will be sold Europe for Euro 1.29 (equivalent to 87 pence) versus being sold in the UK for 99 pence.