First Coffee for 22 March 2006

David Sims : First Coffee
David Sims
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First Coffee for 22 March 2006

By David Sims

The news as of the first coffee this morning, and the music is Prince’s “Let’s Go Crazy,” proudly downloaded from iTunes just this morning:

The only really truly important fact you need to know in this whole iPod-iTunes flap in France is the following, from Piper Jaffray senior analyst Gene Munster:

“We estimate that approximately 20 percent of iPod and iTunes sales occur outside of the U.S. The French market alone is likely less than 2 percent of iPod and iTunes business.”

France’s lower house of parliament has passed a law requiring not only Apple, but all those who sell downloadable music in the country, to provide compatibility – all downloadable music must be playable on all devices, be they Apple, Sony, whatever.

On the one hand this looks fair, but seeing as how Apple has over 80 percent of the market it’s obviously targeted to knock down Apple’s market share. It’s an extraordinarily badly-written law, as almost all laws trying to impose wishful thinking on market forces are, so much so that even Apple’s competitors in the market are wary of it.

So is Apple going to trash their exclusivity for the sake of two percent of their market? First CoffeeSM doesn’t think so, friends. Bet on Apple to simply pull out of France and create a thriving black market for iTunes in France, rather than comply with the law and create a thriving black market for French iPods in the rest of the world.

Not to say I’m surprised by what France is doing. A country which has always idealized farming and treated business with disdain and lightly-concealed suspicion, which has long ago given up on market innovation, will try to legislate the heck out of those who are still capable of it.

“These clauses, which we hope will be taken up by other countries, notably at the European level, should prevent the emergence of a monopoly in the supply of online culture,” Richard Cazenave and Bernard Carayon, National Assembly deputies from the ruling UMP party, said in a statement.

Right. Substitute the word “wine” for “online culture” in the above quote and see how “principled” these politicians get. In other words, we are incapable of producing online culture that people prefer to Apple’s, so we’ll just force them to give us what they’ve accomplished.

Must be nice, having your own country where you get to write your own laws. And don’t think the French are opposed to de facto monopolies, they run plenty of them in Africa themselves, they’re just opposed to ones they don’t run – try buying a beer in Francophone Africa that doesn’t put money in the Castel Group’s pocket.

Apple itself notes, probably correctly, that “The French implementation of the EU Copyright Directive will result in state-sponsored piracy. If this happens, legal music sales will plummet just when legitimate alternatives to piracy are winning over customers. IPod sales will likely increase as users freely load their iPods with ‘interoperable’ music which cannot be adequately protected.”

If there is a case to be made for the law, it’s made as well as it’s going to be by online commentator Leander Kahney, who raises some of the right questions – “Why should the French government help competitors like Microsoft or Sony to get a foothold in a market they have proven incapable of competing in?” – and offers something of an answer by arguing that it’s not good for one company to dominate online entertainment the way Microsoft’s dominated desktop computing.

Unfortunately Kahney then loses the plot and spends a great deal of time detailing what a great job Apple’s doing breaking the Microsoft monopoly, meandering in and out of this musing and that and doesn’t really address the French law question again before slapping himself awake near the end of the column with “ Apple will become more and more powerful as the gatekeeper to this content. And it will behave like every other big, powerful global corporation – as a predatory monopoly.”

And Kahney fails to recognize the difference between Microsoft’s monopoly and Apple – what Microsoft monopolizes you can’t get anywhere else, and you can’t get around it. Apple does not monopolize music, it creates no music, it simply offers a way to purchase and listen to it. You can easily get around it by downloading it to your computer and changing the format to whatever you want.

But this subjective conjecture about Apple-as-monopoly is as good as the anti-Apple types get. BusinessWeek more trenchantly observes that “The French have done it again. In an attempt to update copyright laws for the 21st century, lawmakers in France have thrown a giant spanner in the works of the nascent online digital music business,” and could “torpedo an industry that is on just now getting off the ground after years of inaction and a massive wave of illegal sharing of unprotected digital music.”

This is partly because France itself is eye-openingly naïve when it comes to business issues, especially high-tech. Having someone else pay for your defense for the past sixty years so you can subsidize aromatherapists and set exotic restrictions on your wine industry will do that for you. Recently the French have taken to the streets in protest – no, not to burn cars, that was the previous protest, this latest protest was against a law saying employers could fire under-26 year old employees in the first two years.

That’s right. The way things stand now if you have a job at a company in France you’re pretty well set for life. It’s hard as heck to fire someone, you have to do a really bad job instead of the acceptably moderately lazy job which’ll allow you to keep your paycheck until you retire, at which point the state will take over funding you. Great system if you already have a job, terrible system if you’re a young person looking for one.

Because what happens is that employers simply avoid hiring people in the first place, since once you hire ‘em you’re stuck with ‘em, friends. They get by with minimum staffs, which means there’s very little innovation or risk, which means they depend on countries which do innovate thanks to flexible employment laws (America and… uh… let’s see, there’s…), which means they’re left to grumble in their wine during their lunch hour and a half about how those furriners are running their economy and didja see that there’s a sale on iPods at Carrefour? Let’s go, call in sick the rest of the day, who cares? We won’t get fired.

Hence youth unemployment is over 20 percent because companies, quite sensibly, refuse to hire anyone they don’t urgently need and think they’ll urgently need for the next 20 years. So the French government suggested a change to France’s employment law to allow companies to hire young people with the understanding that they could be let go in the first two years if need be. In other words, how America got to be the unchallenged world leader in innovation and growth, not only in technology but movies and music and any other industry which requires creativity, innovation and risk.

Because even with liberal firing laws American unemployment is under five percent, and nearly double that in the coddled economies of Europe, France included. Think there’s a cause and effect here, folks? Think high-tech companies take risks here because they can? Steve Jobs never would have gotten Apple off the ground in France, but the fact that he had the option of firing people if things didn’t work out allowed him to ultimately provide thousands upon thousands more jobs in the end.

You’d have thought the French government was proposing a ban on wine, cheese and pointlessly obnoxious griping about America the way the French took to the streets, burning cars, tires and whatever else, attacking policemen and shutting down Paris streets. The government still hasn’t exactly caved in but are unfolding the white flag.

In such an environment unrealistic laws are inevitable. Face it, Apple built a better mousetrap – the fact that they’re the market leaders and not monopolists Microsoft should tell you something, that an outside vendor can beat the monopoly provider. For this, cracking the Microsoft monopoly, they get punished?

If the law passes the upper house in May as it’s expected to do, and Apple simply shutters its French operation as it’s expected to do, what would the result be, aside from the thriving black market that develops whether Apple leaves or knuckles under?

One hopes a result is more European innovation in high-tech. It isn’t that Europeans, even the French, are incapable of market-winning innovation – the guillotine, brie, even the heavily-government subsidized Airbus is a step in the right direction – it’s just that they haven’t had to. If that changed, well, who knows what they’re capable of?

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Feedback for First Coffee for 22 March 2006


"You’d have thought the French government was proposing a ban on wine, cheese and pointlessly obnoxious griping about America"

And I'd been led to believe Americans don't get irony...

How is Apple going to shutter their operation in France if they can't fire anyone? I think the French government is wayyyyyy ahead of everyone on this.

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