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Feds to Probe for Digital Music Price Fixing

Posted by inet - 2006-03-06

The U.S. Department of Justice (DOJ) has opened an investigation into online music pricing by major record labels, the Reuters news agency reported Friday, citing unnamed sources.
DOJ investigators are looking at whether the labels may have colluded to set prices, the report says.

Some subpoenas may have been issued, with others to follow in the coming days, the report said. The record labels under investigation by the DOJ are EMI Group, Warner Music Group, Universal Music Group, Sony, and Bertelsmann, it says.

When asked for comment regarding the potential investigation, European record labels were keeping quiet on Friday morning.

Universal Music Group International didn't have any information about possible requests from the DOJ, which would most likely have been sent to New York-headquartered Universal Music Group, a unit of the French company Vivendi Universal, said Adam White, a spokesman for Universal Music Group International.

EMI Group hasn't responded to a request for comment and Bertelsmann said only Sony BMG Music Entertainment, based in New York, could comment.

Cause for Concern?

It's reasonable for authorities to consider an investigation, says Mark Mulligan, a research director for Jupiter Research. "Even if there isn't any evidence, there's this situation and the circumstances of the environment for suspicions," he says.

A few aspects of the music market, including the consolidation that allows four major labels to control most of the revenues, make a situation ripe for potential market manipulation, he says.

Also, those labels are under pressure to protect revenues due to the uncertainty of the effect digital music might have on the bottom line in the future, Mulligan says. "The music industry still isn't sure whether the legal downloads market is going to grow or shrink the overall music market," he says.

As a result, they've kept the price of digital music relatively high, he says. "Let's face it, the DOJ wouldn't be doing this if they thought they were fixing the prices too low," he says.

In addition, authorities have already suspected record labels of fixing the price of CDs, and the European Commission has found evidence of CD price fixing by the major labels, he says. "There's a big part of this investigation that would have to consider these different market factors to determine why prices are where they are," he says.

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