Friday, March 17, 2006

French Parliament Fights iTunes, Part 2

Some people commented on my blog about France killing its Golden Goose by saying France is only complying with EU standards, or that its citizens have the right to tell businesses how to make their money. I still stand by my original post: when government steps in to regulate successful big businesses which aren't exploiting workers or breaking any laws, the wealth of the nation and its workers are eventually jeopardized. Let the free markets decide what they want and don't want. Ultimately, this entire topic becomes moot if this new amendment forces Apple to pull iTunes out of France. At that point, discussion stops: the Golden Goose will be dead.

Still not convinced that could happen? In an article from The New York Times, Jonathan Arber—a research analyst in London at the technology consultancy Ovum—said, "My gut feeling is that Apple will simply pull out of France if these amendments get through. Weighed against breaking their business model for all markets, it doesn't make sense for Apple to continue operating with the iPod and iTunes in France."

The article goes on to say:

Apple would not comment on the legislation. Led by Steven P. Jobs, the chief executive, Apple persuaded the world's major record labels in 2003 to sell songs over the Internet at 99 cents each through the iTunes Music Store.

But the price of making it inexpensive, easy and attractive for consumers to buy online—rather than sharing songs on the Internet without compensating record companies or musicians—was the use of Apple's proprietary formats, making song buyers beholden to Apple and its players, which account for more than 70 percent of all devices sold.

Look, there is no free lunch—as a business, you incur costs to provide a service and as a consumer, you must pay a price to the company to access that service. No one holds a gun to your head to use that service. If you don't want it, don't buy it. In a free market, if no one buys the service, the business dies... or the business reinvents their service until they find a situation where you will buy it. iTunes' success shows that Apple has found the sweet spot where businesses can provide online entertainment and consumers will buy it.

So why is the French government trying to kill iTunes when it's just getting off the ground? Because, in my humble opinion, the French and its government live under the mistaken conception that government is the tool by which capitalism should be sculpted, and it's not—the people themselves decide with their wallets. We wouldn't even be talking about this issue if France weren't the third largest buyer of online entertainment in Europe. Government's role in business is to step in when great injustices are being committed in the workplace, like child labor or sexual harassment. Past that, governments are meddlesome.

Finally, this last bit caught my eye:

In addition, the cross-border implications are enormous, he said. "Governments cannot operate in a technology policy vacuum with a global industry," he added, saying that decisions should be made at least on a European level. "You cannot decide overnight to create a nirvana."

And that's it! The French are trying to create a nirvana within France even if that nirvana conflicts with the pace and standards of the rest of the world. Don't get me wrong, I'd love to have a 6 week vacation and a 35 hour work week and job security and free health care and all the rest of it... but sooner or later, there is blowback to consider. Like high unemployment, a stagnant economy, high taxes—and worst of all—a feeling of entitlement: "I deserve to not ever be fired even if I do sloppy work or treat my customers like shit."

After living in France for eight years, there's nothing that got under my skin more than having a business not treat me as if I were the customer with the money. I don't want a salesperson or business owner to be a pushover, but I'm putting food in their children's bellies, so I'm the one with the power in this situation, not they. Now I'm not saying everyone in France is like this—I know it's a generalization which isn't true for a lot of people—but the overall cultural attitude in French business is still, "I am the business owner and I have the service you need. You should be lucky I'm offering it to you and if you don't want it, I really don't care." The only way the French get away with this attitude is that they know customers can't walk across the street and buy from someone else because they'll run into the same attitude at the competing business. Maybe I'm really wrong about this—after all, I do know plenty of really nice, pleasant French businesspeople—but I do know this: you would never ever run into this attitude in America. Ever. If you did, you could bet that business wouldn't stick around for very long.

Back to my point, if there is one...

To allow companies like Apple to fully compete in a global free market system, you have to be prepared that your own country is going to also make sacrifices at a national level. In this case, that means letting Apple call the shots on how the French get to listen to their music. And shit, man, it ain't a bad system! But if you step in and foul up Apple's business model, you're making rules that don't exist anywhere else. And Apple don't jive with that.

Instead, the French would rather have a contained system where everyone within it competes on the terms they dictate. The moment someone suggests that this closed market needs to be more competitive against other nations by working longer hours or having less vacation time, the whole country shuts down with a massive strike. All I'm saying is that if the miners go on strike because they don't like how much they're getting paid, they shouldn't be surprised when the owner of the mine shrugs his shoulders, slips the key underneath the welcome mat and walks off, never to return.


Richard said...

I don't know enough about legal issues such as fair use to make an intelligent comment about them, but I do know how I feel as a consumer.

I think iTunes rocks. In 2004 I hardly spent any money on music--CDs or otherwise--because I don't like most popular music. In 2005, however, after I began to really use Apple's related-music features (and after discovering Audioscrobbler) I found a whole world of independent label music that is rarely on the shelf in a typical music store in Tulsa. Last year I spent maybe fifty times more on music than in 2004. If iTunes would offer high-res formats I would eliminate CD purchases altogether.

At the same time, it would be nice if iTunes would export AAC files to MP3. I understand why they don't, but my car only plays CD-Audio and MP3s, so I just end up converting them myself. It's not difficult. I don't share them with anyone, because as an artist myself I understand that copyrights are what allow me to be paid fairly. But the only thing these copyright protection schemes really do is prohibit casual, non-technical users from getting fair play from their music. The major players in the illegal music and movie trade can easily get around these constraints.

Still, record companies would never have signed on if it weren't for the copyright protection, so ultimately this system serves me pretty well.

As far as governments getting involved in the free market, I agree that it's usually not a good idea. Governments get in the way of a lot of things, particularly when they try to legislate economy or morality. But the system obviously needs them in antitrust situations, or utility monopolies, that sort of thing. Hard to strike the right balance, I guess.

One outcome I'm hoping for is the eventual dissolution of record labels and their distribution model. They effectively chased me out of their own stupid business by mass-producing crap and keeping the interesting stuff out of my hands. Full digital delivery would allow musicians to reach their appropriate audiences, even if those audiences are significantly fragmented.

Think it will happen?

Ross Pruden said...

100% agreed! For you, it's music. For me, it's TV and short films. Before iTunes, I would never have dreamed spending money to watch TV on my computer, but now I'm so addicted to LOST that -- since I don't have cable anymore -- I gladly give money to Apple to watch a low-res version to appease my fix. And $2/episode is a bargain, in my opinion. As Adam Smith once said, "The seller sets the price but the buyer sets the value."

While I do feel it's irritating that Apple limits their files to their own format (because it's clear that it's possible to break the code with enough techno-knowledge), we don't yet live in a perfect world where we can buy the rights to a song and have those rights follow us around anywhere. Obviously, that is the goal and every person on earth would be happy with it. But how do businesses make any money under that model? It drives me nuts when people don't think about the pragmatic implications of lofty ideals.

Full digital delivery is well on its way, I think. In 20 years, CDs will be coffee toasters for the most part. The democratization of music and motion picture distribution will soon devastate the music labels and film distributors until they revamp, restructure, and redefine themselves. I doubt they'll go under completely (TV did not kill radio, after all) -- there will always be someone who excels at promoting music and movies and most artists would rather not be bothered with all that nonsense. The wave of the future could be a distribution company focusing on promoting artists who live all over the world, rather than promoting only artists who have moved to a major urban hub like L.A. and New York.