Impact of the French DRM Ruling on Apple, Netflix and Tivo (AAPL, NFLX, TIVO)

Here's a thoughtful assessment of the impact of the French digital rights management (DRM) ruling on Apple Computer Inc. (AAPL), Netflix Inc. (NFLX) and TiVo Inc. (TIVO) from Citigroup analyst Mark Mahaney:

As reported in the press, French regulators are looking to pass legislation that would require interoperability between iTunes and other MP3 devices (something that cannot be done today due to the closed loop nature of today’s DRM solutions).

We believe such legislation would mark a major milestone toward legitimizing content downloading. While we still strongly believe downloading will be a niche opportunity, a move for interoperability between Digital Rights Management programs would overcome one of the many hurdles that we have previously outlined (i.e., Legal, Technical, and Economic).

French lawmakers are seeking legislation that would require iTunes to work with other MP3 devices. Today iTunes and iPod work in a closed loop environment using AAPL’s proprietary DRM. Government intervention would create precedence for opening up this loop by mandating interoperability between the fragmented set of DRM solutions. We would note that this has historically been a major milestone for achieving ubiquity in other industries (such as when debit card networks struck reciprocal agreements that allowed consumers to use their debit cards a vast number of geographic locations). According to the press, the French legislation has a “high likelihood of passing