French on to something with iTunes law, say analysts

Europe should wake up, some say, because "Whoever controls access to digital information also controls access to consumers."

French nationalists and free market advocates, whose sniping over cross-border takeovers has grabbed headlines, may now have something they can agree on: protecting freedom of choice on song and video downloads from the Internet.

This could be bad news for Apple Computer and Microsoft, which have for the most part locked consumers into their own downloading systems with proprietary antipiracy software.

The French parliament is set to vote early this week on a new law that would allow consumers to legally circumvent existing software that protects copyrighted material.

Analysts say the French are on to something that the rest of the world has yet to figure out: It needs to set rules for this new market now or risk one or two U.S. companies taking control of online access to music, video and TV.

"Whoever controls access to digital information also controls access to consumers," said Willms Buhse, product and marketing officer at Germany-based CoreMedia, a company that builds digital rights management systems used for copy protection.

"For network operators, DRM (Digital Rights Management) has the potential to become the universal billing system for the Internet," Buhse said.

The law wants different copy protection software programs to be able to communicate with one another, so that downloads from the Web can be transferred to any device, not just iPods or Walkmans, as long as the number of copies stays within limits set by media publishers.

Apple's iTunes store currently dominates online media sales, while Microsoft has successfully sold its Windows Media format to telecommunications carriers that are hoping to sell copy-protected music, TV and videos to subscribers.

The possibility of one or two proprietary U.S. standards dominating the market is not just a concern in France, whose leaders have recently been touting "economic patriotism."

It also unnerves any company that has content to sell or distribute, since songs or videos purchased from one store will often not play on systems from another store, locking in users.

For that reason, Swisscom Broadcast has decided for now not to start a mobile TV service, said Klaus Pilz, the head of its mobile TV broadcast project.

"Protection systems must be interoperable," Pilz said. "Shall we invest in such a technology mess? No."

Todd Chanko, an analyst specializing in digital rights management technology at market research group Jupiter in New York, said his surveys of service providers showed that interoperability of copy-protection systems would be key to convince telecommunications companies and others to invest in systems that distribute content such as songs and video.

Consumers, for their part, are prepared to pay twice as much for a song that can freely move between different devices, a recent study of the European Union-project Indicare showed.

But this interoperability is not necessarily in the interest of companies such as Apple and Microsoft.

Apple may sell fewer of its money-spinning iPod music players, for example, if iTunes tracks can play on less expensive players.

Apple provided no comment on this possibility despite repeated requests for it from Apple representatives in the United States, Britain and France.

Microsoft, eager to expand its tiny footprint in the 816 million unit-per-year mobile phone market, is promoting its Windows Media software to get telecommunications operators to use Windows.

Marcus Matthias, product manager of Windows Digital Media at Microsoft, said his company was following the French debate with interest but was not preparing to adjust its policy to make Windows Media a "common denominator" for digital media, whether on a TV, mobile phone or computer.

Customers agree that, given the lack of an industrywide standard, Windows Media could well be on its way to becoming the de facto format.

"In a converged world where everything travels between PCs and phones, there isn't any DRM other than Windows Media that's likely to cut it," said Dominic Strowbridge, marketing director at BT Movio, British telecommunications operator BT Group's mobile TV service.

One group of companies, however, is trying to forestall a balkanized copyright protection system, or one that is dominated by Microsoft.

Telecommunications operators and consumer electronics companies joined forces several years ago to develop an open standard called Open Mobile Alliance (OMA) DRM.

Until a year ago, the protection standard appeared destined to be the preferred antipiracy system for media companies, telecommunications operators, mobile phone vendors and consumer electronics companies.

However, negotiations over licensing fees have been deadlocked for nearly a year and a half, with the six companies controlling the patents on the technology for OMA DRM 2.0 resisting calls for lower fees.

This has hampered the uptake of OMA DRM by hardware vendors and service providers.

"It has had an impact. It (adoption of OMA DRM 2.0) would have gone faster if licensing terms had been agreed," Buhse said.

Story Copyright © 2006 Reuters Limited. All rights reserved.

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