Apple drops iTunes prices, EU drops antitrust action

Music labels have six months to pare prices in the U.K., warns Apple

Apple Wednesday agreed to lower the price of iTunes music downloads it sells in the UK; in return, the European Union's antitrust agency ended its probe into the US company's pricing practices.

Although neither party called the deal a quid pro quo, EU spokesman Jonathan Todd told reporters Wednesday that the "fact that Apple made this announcement is not a coincidence. It was the direct result of talks between [Apple CEO] Steve Jobs and [Commissioner] Neelie Kroes."

Within six months, Apple will reduce the price of tracks sold by its UK iTunes store to match what it charges customers in 16 EU countries where it operates the download site. "This is an important step toward a pan-European marketplace for music," said Jobs in a statement.

Apple also threatened the major record labels, which it has blamed for the existing price differential, saying that it charges UK customers more because the labels made Apple pay more to them than it does for tunes sold in other European markets. "Apple will reconsider its continuing relationship in the UK with any record label that does not lower its wholesale prices in the UK to the pan-European level within six months," the company said.

For its part, the EU's Competition Commission, which last October struck a deal with Microsoft that ended an even longer antitrust case, applauded Apple's move. "The commission is very much in favor of solutions which allow consumers to benefit from a truly single market for music downloads," said Kroes in a competing statement. The commission's investigation began in 2005, when a UK consumer protection organization filed a formal complaint with the agency.

The commission also seemed to accept Apple's explanation for the original pricing difference, and no longer seems concerned with forcing Apple to create a single pan-European iTunes store that offers the same tracks for the same price to all EU residents.

"Contrary to what we had been led to believe when we opened the antitrust case, the fact that the same content was not available in all different countries is not a result of restrictive business practices between Apple and the record companies," said Todd Wednesday, "but rather it is the result of existing states of copyright legislation. Some, but not all, of the record companies choose not to make available their content on a pan-European basis."

Todd also put to rest any talk of pressing Apple to open the iPod or iTunes, saying that, "Interoperability was not the focus of the antitrust case."

That wasn't surprising, given that the EU has in the past shied away from any action on that front, even though France, a member country, passed a law requiring Apple and others to share anticopyright technologies so rivals can build and market competing players. (Swaths of that law, however, were declared unconstitutional by a French court in mid-2006.)

Because Apple isn't the dominant music seller in the EU, the commission had no reason to push for interoperability. "Apple is not in a dominant position in the market," Todd claimed. "[Thus] the fact that they choose not to insure interoperability is not an antitrust violation."

Nor will the commission go after the record labels. "Our understanding is that the record companies that currently choose not to apply pan-European licensing do so within full respect of existing copyright legislation, and therefore do not regard it as an antitrust violation," said Todd.

After Microsoft lost its appeal over a 2004 antitrust ruling and subsequent fines in September, legal experts pegged Apple as the most likely next target of Kroes and her regulators.

That didn't happen. "The commission will put an end to its antitrust proceedings," Todd said Wednesday.

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