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EU probing restrictions on downloads - April 3, 2007

Political presssure continues to mount on the use of regional locks on digital media.

European Union officials confirmed Tuesday that they are investigating whether Apple is illegally using regional controls to charge higher prices for downloads form its iTunes Music Store in the UK than it charges in France and Germany.

ITunes users in the UK pay $1.57 per download, while users on the Continent pay $1.32 for the same track. Apple uses digital rights management technology to prevent UK buyers from downloading content from other terrirtories.

Apple claims the system is imposed on it by the record companies and that it would prefer to operate a single Europe-wide iTunes stor, and EU officials appear to agree.

"Our current view is that this is an arrangement which is imposed on Apple by the major record companies and we do not see a justification for it," European Commission spokesman Jonathan Todd told reporters in Brussels.

It's not the first time the question has come up as to whether content owners are using regional controls to discriminate on pricing.

Both the EU and the Australian Competition and Consumer Commission conducted probes in 2001 into the use of regional playback controls on DVDs to charge higher prices in certain territories. Australia has since legalized the circumvention of regional control DRM.

The pressure was enough to convince the HD DVD side in the high-def DVD format war to forgo the use of region codes. The Blu-ray Disc Assn. included region codes but reduced the number of regions from seven to three and created a special carve-out for Australia.

Although the EU probe of Apple apparently does not (yet) extend to video on iTunes, regional controls are widely used on movie downloads in Europe.

Warner's In2Movies, to give one example, has hundreds of movies available for download in Germany, Austria and German-speaking Switzerland. But the Web site uses regional control technology to prevent consumers in France or Spain from accessing the movies (although word is the controls are easily circumvented). Similar services exist in nearly every other European Union country.

For the most part, of course, movie distributors don't use regional controls on downloads to fix prices. Rather, online rights are often controlled by other distributors in other territories and the restrictions are used to prevent infringing on other distributors' rights.

From the European Commission's perspective, however, should they get around to looking at the issue, that distinction may not matter.

A distributor may only have the rights to put a movie online in German-speaking territories but that doesn't mean a consumer in France or Italy isn't entitled to watch it. The question would be whether the distributor can use regional control technology to prevent that consumer in France from watching.

Tricky question to be sure. But the loss of regional controls on downloads could play havoc with Hollywood.

For decades, movies have been financed in large part by selling territorial exclusivity to different distributors. If that exclusivity were to become legally uneforceable, that sort of co- or collective financing could go out the window. 

The digital distribution of existing films could also become a free-for-all, which could make it difficult for any one operator to recover the investment in creating an online distribution capacity in the first place.

Fortunately for movie distributors, the probe into the music industry should keep European commissioners busy for awhile.

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