Apple fights bid to allow iTunes on rival players
Apple Computer, the iconoclastic maker of the iPod, probably never saw consumer protests and threats from angry regulators in its future. After all, Apple is the anti-Microsoft, the inventive little company that beat back a giant to survive.
But Apple is having some decidedly Microsoft-like problems these days because of the way it protects its iPod and iTunes franchises from competition. At issue is software embedded in the songs bought from the iTunes music store that prevents them from being played on rival devices.
Norway, Denmark, and Sweden have demanded that Apple strip the blocking software from its iTunes service. France is readying legislation that enforces such interoperability, and Finland may follow suit. Although no action has been taken in the United Kingdom, the record industry's trade body there has called for a removal of the software.
Meanwhile, protests have begun cropping up in the United States. A group called DefectivebyDesign rallied demonstrators at eight Apple stores across the country last Saturday, including the company's new 24-hour store in Manhattan. Wearing hazmat suits, they hoisted signs and handed out leaflets calling for Apple to stop using the blocking software.
Protests over the digital rights management software might never have taken off had Apple not found such success and profit in online music downloads. Apple's overall market share is dwarfed by rivals such as Microsoft. But it is at the top of the food chain when it comes to downloadable music, controlling about 80 percent of the market in the United States and United Kingdom, and about half of the market in continental Europe.
Some analyst say that the company as a whole is poised for further gains, partially because of the easy integration of Apple's software into its line of computers and iPods. "There is more to the Apple story than just iTunes. It is a software system," notes Jonathan Hoopes, an analyst with ThinkEquity Partners LLC. "I believe that never in the history of the PC has a company been better positioned than Apple to gain market share and improve profitability."
So far, Apple has shown no intent to back down. While saying it looked forward to resolving the issues in Norway, the company responded to French regulators with a threat to pull the French version of its iTunes service out of the country. Apple added that, in its opinion, the legislation there was little more than "state-sponsored piracy."
Backers of the company argue that Apple should be able to protect its profit in the digital music market, noting that the company took the risks and built up a profitable business in what was a backwater before iTunes arrived. They also note that companies in other areas of the electronic frontier, such as those making video game consoles, don't have interoperability built into their products.
The question for Apple is whether keeping the copy protection is worth the bad press and the regulatory headaches. Credit Suisse analyst Robert Semple noted in a research report on Apple last month that "Europe remains the biggest opportunity for Apple."