Why Apple changed its tune in Europe
The news this morning that the European Commission has dropped its unfair pricing case against Apple (AAPL) raises the question about how the company got into this mess in the first place.
The issue stems from a basic discrepancy: British customers have been paying 79 pence per song on iTunes (about $1.63 in today’s currency market) while the rest of Europe was paying .99 euros — roughly 20% less.
The British Office of Fair Trading filed a complaint with the European Commission, which in early April formally charged Apple and four music labels (EMI, Sony BMG, Universal and Warner Music Group) with anti-competitive pricing.
This was no laughing matter. According to Thompson Financial, the EC has the power to fine companies up to 10% of their annual worldwide turnover for breaching EU antitrust rules. (link)
An Apple spokesperson at the time made it clear that the company blamed its partners in the music industry:
“Apple has always wanted to operate a single, pan-European iTunes store, accessible by anyone from any member state. 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.”
It’s not quite that simple. Even when Apple cut that deal, back in May 2006, the company was under pressure from the music publishers to relax its one-price-fits-all policy and allow the labels to charge more for some content and less for other stuff — the very issue that has gummed up Apple’s negotiations with Hollywood and the TV networks.
What twisted logic led to the county-by-country pricing scheme is still not clear, but Apple obviously went along with it — and found itself in the EC’s crosshairs.
The problem went away today. The EC closed its case against Apple and the four music labels, and in return Apple agreed to equalize pricing across its European iTunes stores within six months.
Whether song prices in the U.K. will be going down or the rest of Europe’s going up is not yet known
It’s also too early to say whether the settlement is a sign new pricing flexibility in Cupertino. We should find out next week, when the terms of the rumored movie rental deals with Fox, Disney and possibly others are revealed.
“The issue stems from a basic discrepancy: British customers have been paying 79 pence per song on iTunes (about $1.63 in today’s currency market) while the rest of Europe was paying .99 euros — roughly 20% less.”
— I’m not sure that I follow you here. While you (and perhaps the English as well) compare prices to the Dollar, recently a volatile and unstable currency, we here on the continent do not. The more logical comparison, especially for the European Commission, is pound sterling to the euro. One euro is currently exchanging for 76 pence. Therefore the rest of Europe are not paying roughly 20% less. The British are paying the equivalent of 1.04 EUR or you could say Europeans are paying the equivalent of 75 pence. The difference is 5%. A difference, yes, but not shocking.
What we really want here, for all Europeans, is the ability to purchase off the US iTunes store. More choice and nice prices in weak dollars.
Apple will *raise* prices if the music labels don’t “standardize” their prices. The problems originate from the music labels, themselves, not the Apple iTunes Music Store.
If the music labels do adjust and standardize their prices — then — the Apple iTunes Music Store can keep the lower prices for the U.K.
So, whether Apple *raises* the prices (for *everyone* in Europe) or lowers them (for the U.K.) is totally dependent upon the music labels…
The only tune Apple has changed here is instead of accommodating the labels’ country-by-country royalty-based pricing, it is now willing to throw out labels who won’t price consistently across Europe.
Either way, I don’t see how this is a slam on Apple.
Nice one Elmer, thnx for deleting my comment, shows that rather than respond you are happy to just press the delete key and keep up your pointless FUD postings, why don’t you get a job doing something positive for society and stop annoying the world for a living!
“What twisted logic led to the county-by-country pricing scheme is still not clear …”: It is due to the fact that royalty contracts have been set up separately for each country. In the good ol’ days of vinyl, this was the way to exploit the import barriers to maximize profit by having country-specific prices.
ex ped: Interesting. Thanks for that. –Philip Elmer-DeWitt
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Silicon Valley veterans like to joke that Steve Jobs must be surrounded by a reality distortion field; if you get too close to him, you start to believe what he's saying. Thanks to the success of the iPod, the launch of the iPhone and the renewed interest in the Mac, Apple has made believers out of millions of customers - and made a lot of investors rich. But Philip Elmer-DeWitt believes that an ounce of skepticism never hurts when writing about the company. He should know. He's been covering Apple - and watching Steve Jobs operate - since 1982, first for Time Magazine, then for Business 2.0, and now for Fortune.
Apple, yes Mr. JOBS, should also address the choise issue. Her in France, for instance, it is nearly impossible to find new and interesting recordings, especially Country, Rock and even Lang Lang’last Classical piano CD. Zut alors!!! Even the German site and the UK site are more up to date! Ive always legally downloaded, but geeze, why knuckle under to the SACEM (French ASCAP)? Mr JOBS HELP!!!