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Justice Dept. All Ears For Online Music Antitrust Vibe

Their online music subscription services haven't so much as rolled out yet, but already MusicNet and pressplay are being put under the U.S. Department of Justice's microscope for possible antitrust violations.

The probe was triggered by industry outcry that claims MusicNet -- a service formed by AOL Time Warner Inc., RealNetworks Inc., Bertelsmann AG and EMI plc. -- and pressplay -- a more broad initiative spearheaded by Vivendi Universal SA and Sony Corp. -- could form a duopoly in the sector.

That they are being looked in on by the government should come as no surprise; the Big 5, that is, all of the major record groups, lock up roughly 80 percent of all commercial music and have fueled online music company shopping sprees (particularly Vivendi, which snagged MP3.com and EMusic), in pursuit of the upper hand.

Moreover, the fact that the factions have each aligned themselves with titan AOL (MusicNet) and Microsoft Corp. (pressplay), which bore the brunt of the mother of all antitrust investigations, does nothing to assuage the bruised feelings of potential competition or the DOJ, which is sworn to protect them.

But, why so soon? Neither MusicNet, which will serve as a kind of wholesaler by licensing its service and songs to online partners, nor pressplay, which will keep a more careful eye on customer relationships for consistency, have seen the light of day. And if you happened to listen to insider rumblings at Jupiter Media Metrix' Plug.In festival in New York City two weeks ago, they are behind schedule and will be hard pressed to meet September rollouts. Clearly, the DOJ wants to gets its finger on the pulse of an industry that has the potential to change the way music lovers tune in. And it's not too early to do so at all, said one lawyer.

Alan Silberman, an antitrust attorney for Chicago's Sonnenschein, Nath & Rosenthal, told InternetNews.com that the DOJ's preliminary investigation is the new administration's way of laying down the law.

"The first rule of a new administration is to let the world know that the new cop is on the beat," Silberman said. "I think the issue here is that the Department of Justice has got a job at the beginning to make sure that Congress accepts the fact that the new administration and new antitrust head [Attorney General John Ashcroft and Assistant Attorney General Charles A. James] must improve their credibility with Congress and to let people know that things are not going to slide by."

Silberman said it is common practice for the DOJ to look at joint ventures, particularly where major competitors are involved.

"It's a perfectly legitimate thing for attorneys to do, especially when we deal with practices we don't exactly understand," said Silberman, referring to the new technologically-driven business models of MusicNet and pressplay. "We are always concerned that licensing tactics will be used by a company to gain authority and control."

Moreover, Silberman said it was importnat that the European Union and the DOJ, look at the same page, even if they don't read it the same way. The EU started poking around the new ventures in June.

"Nothing will probably come of it unless there is a major technological control that AOL Time Warner or Microsoft have that will limit competition in this area," Silberman concluded. "It will be interesting to see if most of the world will line up in one of these 2 camps."

As of press time, the DOJ did not respond to calls or e-mails seeking comment.

The news, first reported Saturday by the San Jose Mercury News, comes just a few days after U.S. Reps. Chris Cannon (R-Utah) and Rick Boucher (D-Va.) proposed the Music Online Competition Act, (MOCA), which addresses "specific deficiencies" in current copyright laws. Interestingly, in the course of a press conference held in Washington, D.C. to outline MOCA, Boucher warned of a possible duopoly, so the DOJ's premise does not come out of the blue. Indeed, even analysts have eyed the two with suspicion.

Matt Bailey, a senior analyst with digital entertainment research firm Webnoize, said he didn't know if such a bill would pass muster, but noted that their actions may arouse government suspicion.

"The danger with them, is that the oligopoly could turn into a duopoly," Bailey told InternetNews.com. "Between the two of them they're carving up the market."



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