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| DATE | 2005-12-26 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [NYLXS - HANGOUT] Pricing of Downloaded Songs Prompts Antitrust Subpoenas
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Pricing of Downloaded Songs Prompts Antitrust Subpoenas
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By JEFF LEEDS
Published: December 24, 2005
The New York attorney general, Eliot Spitzer, is investigating whether
the four record companies that dominate the industry have violated
antitrust laws in the pricing of songs that are sold by Internet music
services, according to people involved in the inquiry.
Mr. Spitzer's office recently began serving subpoenas on the major
record companies - the Universal Music Group, a unit of Vivendi
Universal; Sony BMG Music Entertainment, a joint venture of Sony and
Bertelsmann; the EMI Group; and the Warner Music Group, according to
people involved.
Warner Music disclosed yesterday in a regulatory filing that it had
received a subpoena on Tuesday in connection with "an industrywide
investigation" into whether the companies colluded in the pricing of
music downloads.
Representatives for Warner and Sony BMG said their companies would
cooperate with the investigation. Representatives for the other major
companies could not be reached or declined to comment.
Mr. Spitzer's inquiry comes as the recording industry is divided over
how to expand the digital market, which has been dominated by the iTunes
service of Apple Computer, which charges a retail price of 99 cents a
song. Of that price, the music companies typically receive about 70
cents.
Some major record companies have been pushing to introduce flexible
pricing, charging more for hit songs and less for oldies, for example.
But some executives say that a more complex price structure would turn
off buyers and hurt industry efforts to woo music listeners away from
free, unauthorized file-swapping networks.
Two major companies - Sony BMG and Warner - hit an impasse with Apple
this year in talks about the price of music on the iTunes service in
Japan. Apple started its service without music from the two companies,
potentially offering a sign of the discord to come as the companies face
contract renewal talks with Apple over its United States service.
Steven P. Jobs, the chief executive of Apple, later called the industry
greedy for pressing for higher prices. Mr. Jobs's critics in the music
industry, in turn, have complained privately that Mr. Jobs is hoarding
cash by holding down song prices to protect sales of Apple's more
lucrative iPod music player. An Apple spokesman declined to comment
yesterday.
The digital market has become a coveted source of revenue for the
industry, which has been suffering a protracted slide in sales of
compact discs. Sales of song downloads exceed 323 million so far this
year, up from 129 million for the period last year, according to Nielsen
SoundScan data.
Mr. Spitzer's inquiry comes just as digital sales are starting to make a
meaningful contribution to the companies' bottom lines. Warner, for
example, generated digital revenue of more than $50 million last
quarter, up more than 300 percent from its fourth quarter last year.
Mr. Spitzer has already been investigating the music industry for more
than a year. His office has been pressing an investigation into the
major labels' practices for promoting their songs to radio stations.
Two companies - Sony BMG and Warner - have reached agreements with Mr.
Spitzer to settle accusations that their employees made undisclosed
payments to radio programmers. The two companies also agreed to pay a
combined $15 million as part of the settlements.
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