RealTime IT News

New Probe of Online Music Underway

Online music pricing is again the subject of a federal investigation.

The U.S. Department of Justice (DoJ) confirmed to internetnews.com that the department's antitrust unit is looking into the four largest record labels and possible "uncompetitive practices" of music download pricing.

While DoJ spokesperson Gina Talamno would not confirm which companies are being investigated, Reuters reported that subpoenas have been sent to EMI Group, Sony BMG, Universal Music Group and Warner Music Group.

"We have not received anything," an EMI spokesperson told internetnews.com. Although most companies named would not comment, one industry source said subpoenas were expected.

In a December filing with the SEC, Warner confirmed it has received a subpoena from the New York Attorney General. The subpoena is an industry-wide investigation of music download pricing, according to the Warner Music document.

Responding to the subpoena, Warner Music Group said it would "cooperate fully" in the New York state investigation. Talamno wouldn't confirm whether the federal investigation was linked to the New York State probe or the reopening an earlier federal case.

Pricing is the main point of friction between music publishers and online music stores, such as iTunes, said Cyrus Wadia, a San Francisco, Calif.-based intellectual property attorney who monitors the online music industry.

"The record labels have been experimenting with variable pricing," he told internetnews.com.

New York Attorney General Eliot Spitzer is investigating the digital pricing plans of record labels.

Spitzer's probe involves the "most favored nation" contract clause with digital music services, internetnews.com previously reported.

Because the clause forbids record labels from receiving worse terms than their competitors, music services charge the practice restricts competition.

Warner Music and Sony BMG last year paid $5 million and $10 million, respectively, to settle charges from Spitzer that the music labels engaged in "payola," paying radio stations to play some songs more often.

Music downloads have also become a hotly contested area. In 2005, Apple CEO Steve Jobs and Warner Music CEO Edgar Bronfman traded insults.

After Bronfman said Apple's iTunes –- which accounts for 80 percent of all legal music downloads priced industry-standard .99 cents per song –- does not share the profits with music publishers, Jobs called music companies "greedy" for hiking prices on songs available through iTunes.

Today's federal investigation into music pricing comes during a changed online atmosphere.

"The music marketplace is vastly different now," Wadia said, adding that the DoJ's 2001 probe of PressPlay and MusicNet looked really bad. The only way to get music online was through the major recording labels.

In 2003, the DoJ closed its antitrust investigation of PressPlay and MusicNet, both services formed by recording labels aimed at distributing music over the Internet.

The DOJ at the time said it didn't find any evidence indicating harm was done to competition.

PressPlay, later sold to software company Roxio, was a joint venture of Sony Entertainment and Universal Music Group. MusicNet is a joint service of Warner Music Group, EMI, and BMG Music, along with Internet company RealNetworks.