TCS Daily

Europe Slips a Disc

By Evgeny Morozov - August 3, 2006 12:00 AM

The DVD standards war between Sony's Blu-Ray and Toshiba's HD-DVD has entered a distinctively European chapter after the European Commission decided to weigh in on the issue. Last week the EU's executive branch launched an antitrust probe that is to examine the licensing terms of both formats. What will this mean for European consumers? Most likely that the debut of both formats will be delayed, with Europe trailing behind America and Asia in embracing another new technology.

It is unclear what aspect of the licensing agreement triggered the investigation; neither the Commission nor the companies disclosed the text of the letter that had been sent from Brussels. Yet speculation abounds. It could be Sony's decision to bundle PlayStation 3 with a Blu-Ray DVD player. Or it could be the tacit agreements made between parties in each camp to promote the standard at the cost of competitive markets.

Whatever the reasoning behind the Commission's actions, the costs of the probe for Europeans are likely to outweigh the benefits. It is not just Sony and Toshiba that stand behind Blu-Ray and HD-DVD, it is almost every major technology or entertainment company. There is no win-win outcome in this game: either both standards get delayed in Europe for an indefinite period of time or one of the camps is found guiltier than the other. In either case, there will be plenty of companies unhappy with the Commission.

When it comes to competition policy, the Commission is fighting on too many fronts. It still hasn't finished its long-lasting battle with Microsoft and keeps adding charges to the bill. The mobile phone operators are outraged with the Commission's plans to impose price controls on roaming fees. That's not to mention the local battles that companies like Apple have to fight with national capitals. And now, the Commission is gearing up for a new fight against the digital domain. Who can argue that innovation in Europe is not under assault?

It is even more disappointing that all this happens during the presidency of the supposedly "pro-business" Barroso commission. If it is pro-business, then it is in heavy disguise. Back in 2004, it might have been, but the major pro-business decisions of that era are now being unraveled in courts. The voided Sony/BMG merger is a case in point.

The EU's brashness rests on the assumption that Europe will remain a lucrative market for technology companies, so they should either play by the rules or leave it. Europe boasts strong protection of intellectual property; the losses associated with pirate material are much lower here than in Asia. There is still some local talent, which has not drifted to the US. The consumers are numerous and affluent, so there are billions of euros to be made. In the longer term, however there is no reason why the big technology companies should stick to Europe. If Wal-Mart pulls out of Germany, why can't Sony? HP could have set the precedent here, when it cut 6,000 jobs in Europe. First jobs, then offices.

As its recent court battle has shown, Apple would probably not suffer much if it simply withdrew from France altogether. If measured against the potential losses that would have been visited upon it had not the French Constitutional Council struck down key elements of the new French iPod law, the benefits of staying in France would have been meager indeed.

EU officials should be made to realize that the day overregulation, red tape, and bad laws turn Europe from an asset into a liability, global businesses will start packing and relocating to friendlier turf, whether in Asia, Latin America, or the former Soviet Union, with its huge pool of talented and cheap manpower. Of course, the companies in strategic industries (read yoghurt) will remain, but the truly mobile and innovative businesses will bid au revoir and leave.

It's ironic that the Commission realizes what a destitute state it is in; at least it realizes that it would take the EU half a century to catch up with America on innovation. The Commission now understands that even though it has the desire to reform, it doesn't have much time. Yet mysteriously these realizations rarely yield anything more than a masochistic drive to exorcise big business from the continent.

Could jealousy be at work in relation to the new DVD technology? The list of founders of both Blu-Ray and HD-DVD includes only one European company: Philips. Even Skype, the most recent European technology achievement, belongs more to New Europe than it does to the Old one, running its business out of Estonia, not France.

Yet European politicians still find the courage to rant about the continent's technological backwardness and look for big pork-barrel solutions. The European Institute of Technology (EIT) looks nice in theory—but it would never succeed unless there is wide support from the private sector. Already owing millions of dollars to the Commission, would Microsoft ever endow a chair in software engineering at EIT? Or will it rather do it in India, where the same money will help to hire three times more staff and accomplish twice as much due to little regulation?

If it's serious about catching up with North America and Asia, the EU should learn how to work with big and small business, how to solicit private money and how to establish university endowments. All of that calls for embracing, not alienating technology companies. Innovation without innovators has never worked. Nor has technology without technologists.

The author is a TCS Daily contributing writer. He blogs at

1 Comment

It's just more of the same shooting their own wieners off over there. Europeans don't like free markets so they keep intervening, it's because they're mostly socialists. That's the model that most american liberals seem to be espousing all the time. America should learn their lessons from pathetic euroland and go back to improving capitalism in the US. Of course that would only shame and humiliate eurabia even more, but hey...they deserve it.

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