US Justice Dept. confirms probe into download price fixing

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US Justice Dept. confirms probe into download price fixing

Washington (DC) – A spokesperson for the US Justice Department told TG Daily this afternoon that the DOJ is looking into the possibility of anti-competitive practices in the music download industry. But the DOJ refused to divulge further information, declining to reveal which individuals or companies, specifically, may be under investigation.

Press reports earlier this morning appeared to indicate that the four major record labels – Sony BMG, Warner Music, Universal Music, and EMI – may be the targets of the DOJ investigation, as they already are targets of another investigation by the office of New York State Attorney-General Eliot Spitzer, which commenced just prior to last Christmas. But that investigation opened with the requisite fanfare and press releases, while this federal probe is apparently being conducted with the utmost secrecy. Still, a Billboard magazine story published today cites industry sources as saying the DOJ investigation will likely parallel that of New York state.

The Spitzer investigation is looking into whether the record labels may be guilty of de facto collusion in allowing each other to include so-called “most favored nation” clauses in their contracts with music download services, ranging from as large as Apple’s iTunes to as small as Wurld Media’s Peer Impact. The name is a play on the status given to allied nations with whom the United States gives preferential treatment, although in this context, it actually doesn’t have to do with global trade. An “MFN” clause of this kind states that a service making an agreement with a publisher promises not to give the publisher any worse of a deal than the service has already given any other publisher. In other words, it’s a promise that the service won’t pay one publisher less per song in royalties than it’s paying another.

A Los Angeles Times story published last January quotes an unidentified music industry executive as saying that the industry needed such clauses in order to rapidly acquire a foothold in the burgeoning digital music download industry, which was already starting to get away from the major publishers. Apple CEO Steve Jobs, whose iTunes service is estimated on average to have 80% of the global licensed tune download market, has repeatedly gone on record as remaining committed to offering customers a fixed price of 99¢ per song; while music industry executives have gone so far as to argue before Congress that they should have the right to set the standards for prices, such as multiple tiers for “first-runs” and “classic hits.”

So were it not for the Billboard story today, there could easily have been some speculation over whether the DOJ’s inquiry actually is following the Spitzer probe, or whether instead it may be looking into allegations raised by these executives that Apple is guilty of a kind of price fixing of its own. In either event, such a claim is likely to play a role in the music industry’s defense.