April 27, 2006


In iTunes War, France Has Met the Enemy. Perhaps It Is France. (AUSTAN GOOLSBEE, 4/27/06, NY Times)

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.

Antitrust authorities normally follow well-established procedures when considering such moves. They weigh the loss to consumers of not being able to play iTunes songs on other players against the damage that forcing iTunes to open might have on innovation. France's own Competition Council did a similar analysis in 2004 and ruled that Apple's refusal to share the iTunes codes did not harm consumers. The legislature paid no mind to such analysis and seems not to have considered innovation at all. Therein lies the danger.

Apple largely created the online market for legal music. 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.

First, Apple's music store is simple and works extremely well with the iPod. Find the music. Click "Buy It." Drag the files onto the iPod icon. That's it. Experiences with other players and music stores are far more complicated.

Further, iTunes keeps getting better. 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.

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.

If the French gave away the codes, Apple would lose much of its rationale for improving iTunes. [...]

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.

We could use some more trusts that give away their product for free.

Posted by Orrin Judd at April 27, 2006 12:09 PM

I think this shows the absurdity of anti-trust regulations in general. The only thing that the politicians have done is use a somewhat different function to evaluate the amount of harm done to consumers. There's not abandonment of any anti-trust principle.

Posted by: Annoying Old Guy at April 27, 2006 1:39 PM

In a way this is also a fascinating look at the mindset of the folks running the New York Times as well. Under normal circumstances, the French government confronting a big American company over its dominance of a market niche would produce a story squarely on the side of M. Chirac and friends. But since this involves an iPod and iTunes, one of the main new electronic playthings of many of the young and middle-aged urban professionals who man the Times, we actually get a story that tacks towards the business and calls the French on the absurdity of their anti-trust action (though other than Ben & Jerry's and Whole Food Markets, I can't think of any other well-known companies that the Times woud list among those who build better products vs. harming consumers).

Posted by: John at April 27, 2006 3:09 PM