Apple was dealt a blow in Europe yesterday when Norway's powerful consumer ombudsman ruled that its iTunes online music store was illegal because it did not allow downloaded songs to be played on rival technology companies' devices. [link]

I have two differing opinions about this.  The first is that Apple should be able to do what they want with their devices and selling proprietary media for them is perfectly fine.  The second is that a consumer who buys a license to content should be able to play it wherever they want and have a license for the content on any system and should only have to pay for distribution and packaging costs on other systems.

My first opinion is definitely the less popular one.  The point here, though, is that this is really no different than Nintendo selling games that only work on their Gameboy or DS system.  For example, if Norway had said Nintendo can't sell DS games because consumers aren't allowed to play them on whatever portable gaming system they have, such as a Sony PSP, everyone would have immediately laughed and thought of it as so ludicrous that it must have been a joke.

Essentially, what I'm saying is that a proprietary digital format shouldn't necessarily be treated any differently than a proprietary physical format.  After all, proprietary formats have been used for years to help make copying more difficult and costly while enabling features that weren't available with off-the-shelf formats to improve the consumer experience. (If Sony had used standard DVD format for the PSP, the portable part would be a bit of a misnomer.)

Also, don't forget that for 99 cents all you are getting is a license to play the content in iTunes and in iPods.  You also get a license to burn it to CDs, which is a bonus, in my opinion. It seems to me that a company can charge what it wants for whatever it wants to sell and the market will decide if the value is appropriate.  And with 2 billion tracks downloaded (and sold?), the market seems to have said that it's OK.

On the other side, I'd like to see a system where I can buy a license to content, say the Lord of the Rings extended edition trilogy, and then have the ability to get that content on all formats for just the basic cost of the format distribution and packaging.  So, for example, if I bought the set on DVD I could later get it on HD-DVD for a much cheaper price since I already own a license to the content.  Then, too, I could get a download for the Xbox 360, a video file for iTunes, and so on.

Sure, there would have to be some reliable method of proving that I own the license before I acquire the content in another format without also acquiring a second license. In other words, I want to be able to apply my current license to get a discount on the content via a new medium. (Partly this is because we have a ton of DVDs that I want on HD-DVD, but I really don't want to pay for them a second time -- and I can't be the only one... imagine people that got stuff on VHS, then DVD, and are now looking and buy the same content for a third time.)

This could be stated as the industry support fair use.  That is, you buy a license for the content and can either put it on any format you want or pay for someone else to put it on any format you want without paying for the license multiple times.

This also still takes in to account the fact that digital distribution is not free (bandwidth costs money) and production is not free (processor cycles to re-encode, time to make DVD (or HD-DVD, or Blu-ray) menus, etc.  They could still charge for all of that. 

For example, say a current hit movie title had a license fee of $15 (it's new, remember?  The license fee might only be 50 cents in three years.).  So, you buy the license for $15.  Then you want the content on HD-DVD, Xbox 360 HD, and DVD for your portable DVD player.  So, say, the cost of pressing the HD-DVD is $2 and the incremental cost of the HD-DVD production and distribution is another $8 (menus, packaging, marketing, etc.)  This brings the cost to $25, which is what current HD-DVDs cost.  However, since you already own the license you only spend $10 for yours.  On the Xbox 360, the re-encoding costs maybe a buck and the marketing costs maybe another couple of bucks, so you'd be able to get it for $3, or about half the price of a current 24 hour rental.  Again, this would be because you already own the license and are just paying for the cost of creating the file and the bandwidth.  Had you just purchased it outright, it would have been $18, a little pricey compared to a full iTunes video, but also full HD -- and remember, it's still new and hot.  DVD is the same thing as HD-DVD, but it's such a well known system the costs will be cheaper, so maybe you'll end up spending $3 for that.  Now, what's happened is instead of spending $18 for the new DVD because you didn't want to shell out $25 for the HD-DVD that wouldn't work on your vacation and never buying the movie again, you've spent $31 on the movie to get it in 3 different and useful formats (well, sorta -- you don't really need both the XBox 360 and HD-DVD versions).  You are happier because you didn't have to spend over $50 for all of that and the studios are happier because you did spend more than you might have.

This probably isn't practical in the current market, but I think the idea is something to think about. It also negates the whole Norway thing since in this model Apple would only be charging for distribution and encoding and a bit for pass-through marketing costs from the labels. Then again, not every country has a fair-use clause in their legal system.

It also comes down to the value of a proprietary format compared to the contents being distributed within that format and whether or not that's independent from the medium of the format (digital, physical, etc.). 

Other opinions are welcome, assuming comments are working. ;)

Posted by Shane on January 26, 2007 12:17 AM | Permalink