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EU needles Apple, EMI

Banging the DRM

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A day can be like a lifetime in politics and perhaps the same adage can also be extended to the man with a penchant for black roll-neck sweaters, Apple boss Steve Jobs.

In the space of 24 hours Apple has gone from announcing an all-singing, all-dancing DRM-free deal with EMI, to facing the possibility of being slapped by EU fines of up to 10 per cent of the firm's worldwide annual turnover.

And it is not alone - the major record labels, including EMI, could also be hit by the same fines.

As we reported earlier, the European Commission has issued a Statement of Objections "against alleged territorial restrictions in online music sales to major record companies and Apple".

The EC alleged that deals between Apple and record companies restrict music sales in Europe. It said that consumers can only buy music from iTunes in their country of residence and that this is validated through credit card details, thereby violating Article 81 of the EC Treaty.

In other words, depending on where you live in Europe, downloading the same song from iTunes can be more costly in one country (such as the UK) compared to another.

It also said: "The Statement of Objections does not allege that Apple is in a dominant market position and is not about Apple's use of its proprietary digital rights management (DRM) to control usage rights for downloads from the iTunes online store."

However, the timing of the EC's Statement of Objection, coming immediately after the EMI and Apple deal, which Jobs described yesterday as "a landmark event", could set tongues wagging.

Earlier this year, EMI said it would not go down the DRM-free route because of concerns over the risks associated with making its music unencumbered by digital rights management.

So, given its relatively shaky financial position (it recently rejected a bid from Warner Group as well as saying it needed to make £110m of cuts this year), has EMI simply changed its mind, or is Apple paying EMI "upfront" to help guarantee revenue?

Unsurprisingly, neither Apple nor EMI were able to disclose any of the finer details of the financial deal struck between the two. Indeed, after yesterday's colourful-trumpet-blowing-piano-bashing parade of "good news", both companies today took a more sombre approach to press enquires.

An EMI spokesperson told El Reg: "We do not believe we have breached European competition law." He added that the investigation was ongoing and that the music giant will be mounting a strong defence against the allegation.

Interestingly, Apple appeared to be pointing the finger at record companies and today said in a statement that it "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 don't believe Apple did anything to violate EU law. We will continue to work with the EU to resolve this matter."

Apple, EMI, and other major record companies have two months to defend their market position to the EC. In the meantime, the music industry will continue to flex its digital muscle in the hope of driving up sales. ®

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