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Dutch plans for iPod tax could kill MP3 industry

A levy on the .mp3 format

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A Netherlands proposed tax on MP3 players could devastate sales of hard disk players, and set up international waves over copyright legislation.

The tax is being proposed by the Stichting Thuiskopie foundation, and is set to become law in the Netherlands in a few short months unless the European Commission finds a reason to intervene. It is unlikely that will happen, as it has failed to come up with a policy for levy taxation so far.

The idea of all levy based legislation is that some form of copyright collections agency collects tax by imposing a surcharge at the point of sale for any storage devices that could possibly be used to store pirated works. This certainly extends to the iPod which has up to 60 GB of storage, and which can store MP3 files.

Because of the fact that the great bulk of iPods are used to store legitimate iTunes files which are Digital Rights Management (DRM) protected, this means that copyright is being purchased twice over for these devices if a levy is also paid.

The charge will be levied against every MP3 player, and is effectively a tax on the MP3 format. Some efforts to place MP3 files under DRM protection will also mean that these will pay copyright twice over.

Levies are an outmoded and unfair way of rewarding existing monopolies and are only ever put in place to keep ancient publishing copyright agencies in business.

In almost every case the organization itself that carries out the collection is lavish and well funded, the proceeds are distributed only to large multinational music publishers, bolstering their revenues unfairly. It is little more than a club of companies that "have a right" to make money.

If this legislation comes into play, the surcharge will be as much as €3.28 ($4.3) per gigabyte. This might put €180 ($235) to the price of a top end iPod.

Already in Germany there is a levy on PC hard drives, that will soon become larger than the entire PC industry revenue if it is left in place. Within two years, as disk drive sizes move to terabyte class on notebooks, and petabyte levels on home DVRs, the tax will come to far outweigh not just the cost of the drive, but the cost of the device. Under this Netherlands law, if it were extended to the PC, the cost of 1,000 GB would be €3,280 ($4,300) and yet drives of this size will be delivered by 2007.

The only way to bypass this law in the Netherlands might be to tweak iPods and other players to only accept alternative formats that are always protected by DRM, but that would mean that only iPod (with AAC) and Sony devices (with ATRAC) could have any sales and we're not sure that would satisfy the new law as we don't yet know how it is going to be worded.

Or the Dutch could just become a nation without iPods. I wonder how happy that would make them?

Copyright © 2005, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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