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 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 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

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, 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.

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.

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