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Apple faces a fine of more than £300 million after the European Commission issued a formal objection to the higher prices it charges to download music from iTunes in Britain compared with the Continent.
The threat, uncovered by The Times last night, took the gloss off a major announcement that the company is to sell iTunes tracks free from anti-piracy measures.
Apple, the dominant digital music retailer and the maker of the iPod, charges 79p in Britain for a song and 99 euro cents in Europe. On current exchange rates the equivalent of the European price would be 67p.
Steve Jobs, the chief executive of Apple, agreed to sell songs from EMI’s artists, who include Coldplay, Lily Allen and the Rolling Stones, for 99p, in return for EMI giving up software protection designed to prevent illegal copying and sharing. The same songs will be available in Europe for €1.29, equivalent to 87p.
The commission said that it objected to Apple’s practice of making consumers buy songs from the iTunes shop in their home country. As a result, it said: “Consumers are restricted in their choice of where to buy music, and consequently what music is available and at what price.”
The timing of the Apple-EMI partnership indicates how important it is for Apple to side-step growing regulatory pressures stemming from the success of iTunes and iPod. It has sold 90 million iPod players and two billion iTunes tracks. Companies found in breach of competition law face a fine of up to 10 per cent of annual turnover, which would be about £323 million.
EMI said last night that it did not believe it had breached European competition law, and would be making its case strongly to the commission.
Yesterday’s announcement of the sale of premium quality digital tracks free from antipiracy controls, was a big gamble for EMI and Apple. From May, iTunes customers will be asked to pay the 99p fee to download tracks of a higher sound quality than the standard 79p versions. They will be capable of being played on rival devices to the iPod after the removal of the digital “locks” that prevent them being copied and distributed over the net. EMI, whose catalogue includes Queen and Pink Floyd, is the first big label to offer its catalogue online without antipiracy technology, called Digital Rights Management (DRM). Illegal downloading has cut profits at the British-owned company, which is the subject of takeover speculation.
EMI bosses concluded that action was necessary to kick-start a market that has failed to compensate for the decline in CD sales. Eric Nicoli, EMI chief executive, said: “The best way to combat illegal traffic is to make legal content available at decent value and conveniently. Consumers tell us they would be prepared to pay a higher price for a piece of music they can play on any player.”
Customers of iTunes may be suprised to learn that they have so far been denied a superior listening experience. The premium tracks promise the equivalent sound quality of a CD, but the higher-quality files reduce the amount of tracks a user can store on their portable player.
Mr Jobs predicted that other record companies would follow EMI’s lead. The market leader, Universal Music, is uncertain if EMI’s deal will increase the overall market, because it may encourage piracy. David Pakman, chief executive of eMusic, iTunes’s closest sales competitor, said: “DRM has held this market back so this is very good news. But even without DRM, iTunes files are still not compatible with a number of popular digital players.”
The European Commission inquiry is likely to drag in all the main music labels, including EMI.
Online options
Apple iTunes
79p single track — with digital locks and at 128kbps sound quality 99p premium EMI track — no digital locks and 256kbps quality EMI album prices unchanged with no locks and all at 256kbps
eMusic.com
£8.99 for a one-month subscription; download 40 songs to own at 22p a track
Napster
£14.95 a month to transfer any music downloaded from 3 million song catalogue to non-iPod portable players. Albums to own for £8.
3 Music Store
Mobile users download tracks for 99p. Tracks convertible between mobile and PC.
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It's interesting that this article doesn't talk at all about the reasons Apple originally decided to charge different prices in different countries. The big music labels made Apple sign contracts for licensing in each country individually, with different pricing terms for each, so Apple had to pass that differentiation on to the customer. If you Europeans really want to pay the same amount for music in every country, maybe the EU should regulate the way the music labels are doing business over there. Look for the root cause instead of treating the symptoms.
Andy, Chicago, USA
It seems a bit strange that this 'massive forward step' involves removing the DRM component of MP3/MP4 files, considering the vast effort that has been expended on creating a legislative framework to ensure that DRM is a viable anti-piracy measure. As for Apple's position of differential charges for residents of different EU member states, this seems untenable given the fundamental concepts of free movement of goods and services underpinning the single market initiative. Apple should most definitely offer the same service for the same price, regardless of where we live, otherwise the incentive for people to legitimately obtain music over the internet will be so negligible that the music industry may never recover from its current decline in sales.
Harry, Cambridge,
I think Jack from Edinburgh makes a very valid point, and has kind of hit on something that is missing here. Yes, Apple's pricing might mean you could go to the high street and buy the CD cheaper than the downloads, but who wants to? IMHO most CDs are made up of around 8 fillers, 1 outstanding track, and 1 half decent track. So for £1.98, I can get everything I want off a CD! People are sick of paying for the garbage half-baked albums from talentless that record companies have been foisting on us because they're a saleable "brand". I would hope that the kind of playing field that Apple and EMI are creating, will mean that musicians will actually earn closer to what they're worth, and record companies will actually have to earn their money looking for and developing genuine talent capable of producing more than one song.
Russ, London, London
Well Have I missed something here but aren't Apple going to turn around and say ' The bigger prices are to cover the cost of sending a song to a user at 256kbs quality instead of half the quality DRM cheaper songs are sold at'
It seems fair to me..They have to pay their server/bandwidth costs and the increase in prices seem to be logical? they are deliverying more data.
Thomas Harper, Hastings, UK
I agree, 99p is an absolute rip-off. If it's going to be approximately £10-£12 to buy a full album digitally, I'd rather buy it for a few pounds cheaper and have a copy on CD which I can play anywhere, and put onto my computer/iPod. The fact that the 99p tracks have no digital locks on is nothing spectacular at that price, considering CDs are the same - no locks and the same price, plus the fun of having a CD insert. I think the only way I would consider buying an album through iTunes come May, is if they have a discounted price if you buy a whole album.
Aliyah, London,
It is little wonder why more and more of the public are saying 'NO' to being ripped off by greedy music companies, and are instead using BitTorrent peer-to-peer file sharing technology to download for FREE!!
roz, leeds,
What about getting Apple to reimburse all the overcharges to us stupid brits (they will no doubt have the details for their nepharious marketing purposes) with the impotent govt. that let this happen. Let the market decide?, that works doesn't it?.
Jim, Bristol, UK
it will be cheaper to buy CDs from amazon, play, ASDA etc online than to download at 99p a time. At least then you can convert to whatever quality you like and be able to play your music anywhere in your house without having to buy Apple Airport or Sonic wireless systems.
itunes current music quality is rubbish, and video download quality as bad when displaying on a decent sized LCD. Why are we paying more for an inferior product? Dont get me wrong - ipod & itunes are great, but only when you can control what is on it and its quality
Adrian, Edinburgh,
So Britain is once again 'Treasure Island' for an entire industry surprise surprise, why is it that consumer rights in this country with respect to big business are usually defended by the EU and not the UK Government? DTI incompetence perhaps?
Martin, London, UK
I gave up buying records/CDs/tracks years ago. I just got sick of the status pop 'stars' achieved after one poor hit.
The money everyone seems to 'earn' is outrageous and while if I was in that league Id have a damned good time, too often we hear of these celebs abusing drugs and young children.
Perhaps the industry needs to clean up its act.
Jack, Edinburgh,
US companies can do what they like in Europe re: pricing. EU competition law doesn't stretch to the other side of the pond!
Dan, High Wycombe,
Why does the UK get singled out for higher pricing by so many international companies? Why not France/Germany/Australia/Iran? Is it a political statement, as I cannot believe it is purely a commercial response to exchange rates?
Mike, Kingston, Surrey
The exchange rate of £1 = $1 has gone on for so long in the electronics and entertainment industry they don't believe in the real one any more.
Jay, Woking, UK
DOUBLE, George?
I make it an extra tenner for the OEM version of Vista home premium (source: Pricerunner). Still not on, but less of a markup than iTunes (16% as opposed to 25%)
Rob, Billingshurst,
While I disagree that Apple should charge more in the UK than the rest of Europe. What about Microsoft charging DOUBLE for their new operating System Vista. I hope The EU will be sorting out that ripoff soon too.
George, Lincoln,
It would appear that Abercrombie & Fitch are up to a simular trick.
Since opening their new flagship store in central London, they have started to block Internet access to their American e-commerce website for UK residents. You are instead automatically redirected to a new UK website that charges significantly more than the US store even allowing for shipping, VAT & import duties.
People who live in the rest of the single market can still buy from the US site at the much cheaper prices (more than 50 percent less). Thus Abercrombie have effectively divided the European Single Market.
I hope the European Commission will also persue this matter.
Jon Rowles, Twickenham,