by Kristin Hammer Apple s Media Monopoly The Ethics of itunes and ipods French Lawmakers Get Involved in the Digital Music Dispute o n March 21, 2006, the French government voted 296 to 193 in favor of a law that would force Apple to open up its digital music format. If the law is instated, the exclusive itunes/ipod compatibility will cease to exist. Any mp3 player will be able to play songs downloaded off of itunes, and ipods will be able to play music off of any online music retailer. France s ruling will have a far-reaching influence. It s the first step in dissolving the Apple monopoly worldwide. The overarching issue is Apple s dominance in the digital music market. The following analysis is meant to motivate readers to consider the ethics of Apple s monopoly in a rapidly growing online retail industry. Apple s exclusivity between itunes and ipods is preventing competitors from achieving an equal level of success. Apple s dominance in the digital music retail market is unfair, and the company should open up its format to other retailers. In 2001, Microsoft was faced with the same dilemma. It unfairly dominated the software market, and refused to change its policies before being struck down by the U.S. Supreme Court in an anti-trust case. Apple needs to take action before a similar lawsuit in its home country. The decision would give struggling music retailers a chance to expand and encourage legal downloading. It is, ethically, the right thing to do. Additionally, the decision to open up music formatting is positive for Apple and its stakeholders. Opening up the format would increase the sales of ipods and the number of sales on itunes. Both Apple and its competitors would benefit. To fully understand why Apple must make this ethical decision, I will examine the Microsoft anti-trust case, as well as the social and financial benefits of opening up the itunes/ipod format. I will then consider how each stakeholder is affected by Apple s dilemma. Lastly, I will recommend an ethical course of action for Apple - a media giant. l french tech-revolution: the case against apple According to a March 21, 2006 article by BBC News, French MPs backed a draft law to force Apple to share [its] proprietary copy-protection systems. In other words, Apple must share the format to its itunes and ipod mp3 programs. With the code made public, any competing digital music retailer could create and sell
ipod-compatible mp3 s. Currently, itunes is the only digital music retailer that is compatible with the ipod, and the ipod only plays mp3 s downloaded from itunes. If the law were enacted in France, users would no longer be forced into using an ipod just because it s the only mp3 player that works with the itunes store. The BBC claims that, The aim is to ensure that digital music can be played on any player, regardless of format or source. The decision in France stems from a concern that Apple s itunes/ipod business has a grip on the fast-growing digital download industry. In France, itunes reigns with only one other competitor even close to challenging Apple s status. According to the BBC, itunes accounts for more than 70% of paid digital downloads in some countries, and the business continues to grow. By passing the law to open up the itunes/ipod format, the French government plans to level the playing field for consumers and competitors alike. France wants to encourage ethical corporate behavior, and spark competition in the digital retail industry. The decision, if enacted, will change the way the digital music business is done in France. Apple is successful with itunes and the ipod because the two parts work exclusively with each other. This new law would break down all entry barriers for competing online music retailers. The Apple-centric industry would be turned on its head. l apple s ethical dilemma As of now, the decision in France only affects French citizens. But this movement by the government is a sign of things to come. As in the earlier case against Microsoft, a government is cracking down on a software manufacturer that is monopolizing the market and creating brutal conditions for competition. Apple must soon decide how to move forward in its role as the leader in digital music. It would be unwise to get caught up in a massive lawsuit in the United States, like Microsoft did. A lawsuit is time consuming and results in bad publicity for the company. Before the U.S. government follows France, Apple must either act ethically and release the itunes/ipod format, or act in the standard profit-driven model. l the right choice: why apple must hand over the format There are three reasons for Apple to make an ethical decision: Microsoft didn t act ethically, and paid a heavy price Apple has benefited from ethical behavior in the past Ethical behavior could be good for Apple s business The following analysis of the three reasons explains why Apple must release its itunes/ipod format. l the microsoft case An ethical decision by Apple would result in equal opportunity for competition. Digital music retailers, such as Yahoo! Music, could challenge itunes on a level playing field. Competition is encouraged in the computer industry, because it provides the consumer with more variety and spurs innovation. Monopolies constrict the industry by dominating the business and giving the consumer only one option. For this reason, monopolies are disbanded through legal action. Such an instance occurred when the United States government publicly slapped Microsoft with an anti-trust lawsuit. Apple s situation with itunes is similar, as will be its legal fate if it does not decide to open up the itunes/ipod format. According to the article, Microsoft s anti-trust tryst: Ethical implications in the May 2003 edition of Strategic Direction, Microsoft went beyond having a competitive advantage. The company created entry barriers and overpowered competing companies. Microsoft was a full-blown monopoly when the United States government entered the picture. The author of the article defines a monopoly as having three qualities, and explains how
Microsoft displayed these characteristics: Control of the Market (Microsoft controlled over 90% of sales) Barriers to market entry exist in order to prevent competition (The high cost of developing an alternative when Microsoft clearly ran the industry) The company is a price maker (Microsoft set the pricing of software) By these standards, Apple s itunes and ipod can be classified as a monopoly. The itunes store accounts for over 70% of digital music sales. Apple has the most recognized online retailer and mp3 player and currently controls the market. There are also obvious barriers to entry, which is what the French government sought to stop when it recently ruled to open up the itunes/ipod format. As of now, music downloaded from itunes will only work on one mp3 player the ipod. And the ipod will only play music downloaded from one online music store itunes. This keeps all competition at bay. Lastly, itunes is a price maker. The 99c per song price set by itunes has is now standard. Since Apple is an established monopoly, the company, like Microsoft, must deal with the negative consequences. According to the author of Microsoft s anti-trust tryst, monopolies are seen as corporations with predatory conduct and questionable practices. Such a reputation is bad for Apple, a historically consumer-friendly corporation. More importantly, Apple s binding format and monopoly is unethical, much like Microsoft s past model. By the end of Microsoft s court case, the company was forced to reevaluate their business strategies. The Strategic Direction article states that Microsoft was found to be a public company, meaning a company that is powered by the general population. Because hundred of thousands of people used Microsoft and its products, Microsoft had an obligation to act ethically. Apple is also a public company. It has an obligation to work towards the greatest good for the greatest number. l apple s past with ethics: how the company benefited This isn t the first time Apple has been affected by business ethics. However, Apple had previously been in the position of the competition, not the dominant company. For example, Apple and Microsoft are historically competitive. Until Microsoft s anti-trust case, Apple was unable to offer Microsoft programs, such as Office, with its products. This restriction hurt Apple and its sales. Now, Apple is free to offer Office and other Microsoft products with the Apple computer. Apple continues to benefit from Microsoft s enforced ethical behavior. According to an April 5, 2006 article on CNN.com, Apple computers will now be able to run Microsoft Windows a move that could considerably boost Apple s sales. CNN states that users will be able to switch between Windows and the Macintosh platform with ease. Tim Bajarin, a tech consultant at Creative Strategies, states that [the interoperability] makes the Mac the most versatile computer on the market. Wall Street showed confidence in Apple following the announcement, and Apple s stock soared. As Apple benefits from business ethics on Microsoft s part, the company has a responsibility to act in a similarly ethical way. Apple is given a chance to compete, and it is only fair that it allows others to compete in the field where it dominates music media. l the business rewards of de-monopolizing According to a March 22, 2006 article by the BBC, following the ruling in France, Apple stated that its sales with both itunes and ipods would increase if the company were forced to release the formatting. While this may seem like positive press-spin, Apple could be right in its assumption. itunes and ipods have enormous appeal. By allowing ipods to play music from various online music stores, a whole new market is opened up.
Sales, for the ipod at least, could benefit from interoperable music. l stakeholders analysis: who s involved and how they re affected Apple From the perspective of Apple, opening up the itunes/ipod exclusivity might seem irrational and unwise. After all, the ipod is Mac s killer app. It brought back Apple from computer oblivion, into the realm of massive popularity. A major part of the company s success is due to the fact that itunes and ipods only work with each other. That success is creeping into the territory of overwhelming monopolies a territory Microsoft pioneered for the computer industry, and ultimately paid a big price for. Opening up the itunes/ipod format could financially hurt the company in the short term, but the ethical behavior would save Apple from the humiliation and large-scale economic damage that Microsoft suffered. It s the fair and right thing to do in this situation, and Apple prides itself on being a company that is in tune with an ethically conscious population. Competitors If Apple makes the ethical decision, competitors could cash in on the popularity of itunes and ipods. The playing field would level, and it would be up to the competition to challenge Apple. While this is promising for competing online music retailers and mp3 producers, there is also a risk. Again, Apple s popularity could benefit from interoperability overwhelming the industry with its easiness of use. This could result in a bigger playground for Apple if competing companies do not smartly seize the opportunity and challenge itunes and the ipod. Consumers Apple s dilemma affects consumers just as much as the companies. If Apple released the itunes/ipod format, digital music fans could explore alternative online stores and mp3 players. Additionally, the consumer base for Apple could increase as people who were previously hesitant about using an exclusive system decide to try Apple s products, knowing that they re compatible with other music and mp3 systems. A decision by Apple to pull back its music monopoly would bring good things to consumers more options, more freedom to choose, and great products. l apple s opposition On March 22, 2006, the BBC reported that Apple had not taken the ruling in France lightly. According to the BBC, Apple believes that such a ruling will lead to state-sponsored piracy. Apple makes a point. The foundation of this new French-imposed system requires Apple to release the code that prevents their music material from being copied. In the hands of competing companies, this is fine. It allows them to utilize the same format so they can produce music that is compatible with the ipod. In the hands of a general population desperate to share free music, the open code could lead to piracy. Unfortunately, Apple s argument is meaningless given today s technology. While they make a correct assessment, piracy is already built into the computer industry. Piracy is an epidemic in the music industry, and it will be almost impossible to stop. Apple needs to focus on its role as the dominant force in digital music. Again, it is a monopoly, and a public company. If Apple is concerned with the health of the industry, then it should acknowledge that its own business model is damaging. l moving forward: acting differently, acting wisely, acting ethically The ruling in France will not directly affect Apple in any large way. France makes up only 5% of itunes sales. However, France s decision to break down Apple s grip on the digital music and mp3 industry will influence how other countries approach Apple and its growing monopoly. It won t be long before the United States government starts to see Apple in the same light as it did Microsoft before the anti-trust lawsuit. Apple must act ethically it must be fair to competitors. Apple has benefited from ethical behavior in the past, and now the
company must open up its itunes/ipod format. Doing so would be good for the public, good for the industry, and good for Apple s reputation. I suggest Apple heed France s warning, and act before the United States government does. Apple has always distanced itself from Microsoft. Now it has a chance to take a different path an ethical path that doesn t involve lawsuits and monopolies. l Student Bio l Kristin Hammer is majoring in Communications, and recently completed her junior year at the Annenberg School. Kristin s interest in music inspired her to pursue a career in the music industry after graduation. In preparation, she will be interning at Sony BMG in New York City during the summer of 2006. Kristin produced this article for Dr. Lucy Lee s Writing 340 class. l Works Cited l Apple attacks plan to open itunes. (2006). BBC News Online. Retrieved April 3, 2006, from http://news.bbc.co.uk/go/pr/fr/-/1/hi/technology/4833010.stm Apple OKs Intel-Macs to run Windows XP. (2006). CNN.com. Retrieved April 3, 2006, from http://www.cnn. com/2006/tech/ptech/04/05/apple.software.ap/index.html French MPs vote to open up itunes. (2006). BBC News Online. Retrieved April 3, news.bbc.co.uk/go/pr/fr/-/1/hi/technology/4828296.stm 2006, from http:// Microsoft s anti-trust tryst: Ethical implications. (2003, May). Strategic Direction, 19, 21-24.