Technology Outruns Law in Digital Media

European laws for the digital music market could quickly become obsolete as companies challenge iTunes and mobile phone makers enter the fray

As European legislators rack their brains to try and come up with a legal framework that embraces producers, authors and consumers' demands in today's digital market, multinational companies are already busy creating tomorrow's digital technologies at a speed that risks putting legislation out of date before it is even conceived.

"We are right now going through a period of developing new usage and business models...will consumers stick to downloading music on their computers or will they use their mobiles, or maybe a combination of both?", Sylvie Forbin, vice-president for Public and European Affairs in French firm Vivendi, said at a hearing in the European Parliament on 18 September.

She added that as long as consumers have not yet decided how to get their digital music, then it is too early to legislate.

High-profile lobbyist Forbin first came to public attention when she represented Vivendi and the European entertainment industry in the so-called "Apple-case" in France, which highlighted the need for clear rules in a market where one bright idea can grab market share with lightning speed.

US giant Apple accounts for 70 percent of the market for legal downloading via its own model - the music downloading site iTunes - which offers music in exchange for a small fee per song, but only to owners of its own MP3-player, the iPod.

Competitors as well as individual European member states have complained saying the Apple set-up obstructs competition, with iPod dominating MP3 player sales.

In June, consumer organisations in Norway, Sweden and Denmark decided to take Apple to court for not opening up to other MP3 brands, while in France the national assembly soon after voted on a proposal to make distribution exclusivity illegal - a law that would have forced Apple to close its online music shop in France.

After months of lobbying by Apple, French MPs finally adopted a watered-down proposal that gives the US firm the right to appeal to an independent court and hold on to the status quo.

Apple has said it will refuse to let iTunes go, something which would mean giving up its exclusive position on the legal market for music downloading.

"If the proposal is enforced, legal music sales will plunge, just when it was starting to get supporters. The sales of iPod will probably rise as consumers can load their iPods with available music and films that cannot be protected, a phenomenon that will soon develop into a state supported piracy culture", the Swedish branch of Apple stated.

The Apple cases around Europe have similarities to a recent dispute between the European Commission and Microsoft, where the American computer company was given a monster fine for not complying with a Brussels order to make information available to its rivals about its Windows operating system that would allow greater interoperability between servers.

The American justice department said recently that European legislators should keep their hands off Apple, claiming innovation is threatened if companies are forced to reveal their business secrets.

ELECTRO-GIANTS DO NOT HAVE TIME TO AWAIT RULINGS. Regardless of what legislators debate in the EU and the US, Apple competitors have had no time to sit around and wait for legislation to boost their sales figures.

Apple is making its highest profits in years from consumers that would otherwise likely be pirates if they had not been seduced by the trendy iPod.

Meanwhile, rivals on the portable music market are doing their best to copy the popular MP3-player's design and the way it is marketed, such as providing music to the buyers of their players.

On top of this, a number of new technologies will soon see the light of day. The mobile phone industry is keen to develop software for music to be downloaded on handsets, thus combing downloading, file sharing and the comfort of having a phone, MP3 and internet connection in one gadget.

Other companies have signed up with peers in the music industry to sell music to their internet consumers and deprive rivals of the profits that may arise from random surfing between music companies and file sharing programmes on the net.

Microsoft has launched a runner-up to ITunes called Zune, where Toshiba MP3-players are compatible with the computer company's software, and Nokia is aiming to create phones that can download music and transfer them to music players without the user ever having to log on to a computer.

Classifying the new ways of listening to music will be a legal minefield for legislators with problems such as how to legally define a mobile phone ring tone of a copyright protected song that you cannot store or share with others but is sent to you from a file sharer on a computer.

"Maybe we should sit back and wait with further legislation, the market is still immature", suggests Ms Forbin.

Before it's here, it's on the Bloomberg Terminal.