Major labels 'face DoJ antitrust probe'

Two major labels have been served notice of a fresh antitrust investigation, a music business newsletter reports today. MusicAlly's daily Bulletin suggests that the as-yet-unlaunched TotalMusic service, currently backed by Universal and Somy BMG, has prompted notices from the US Department of Justice. The report suggests all four major labels have been contacted.

TotalMusic, described by Rick Rubin back here, is reported to be a low-cost, multi-platform subscription service to be offered to consumers through ISPs and device manufacturers. The plan has few of the restrictions traditionally attached to subscription services, with the service provider or hardware manufacturer subsidising some or all of the mooted $5 monthly fee.

"The subscription model is the only way to save the music business," Rubin has said. "If music is easily available at a price of five or six dollars a month, then nobody will steal it."

As an example of third-parties' willingness to subsidise music to the point of it being "free", UMG recently signed a deal with Nokia to bundle free downloads with selected handsets, which the punter can than keep.

A history of abuse

However, since the four major labels supply 80 per cent of the market with sound recordings, the issue of price-fixing has never been far from formal regulatory scrutiny. Executives are schooled in avoiding trigger words that indicate the major labels are acting in concert. In 2000, the Federal Trade Commission concluded that the labels' "Minimum Advertised Price" programs constituted wholesale price fixing, which had cost consumers $480m.

Fear of being seen to act like a cartel has paralyzed progressive licensing initiatives.

In December 2001, the majors backed two music subscription services called PressPlay and MusicNet, and came under immediate antitrust attention. PressPlay was backed by Universal and Sony, while MusicNet was backed by Warner, EMI and BMG together with Real Networks. The DoJ investigated a number of complaints, the strongest of which was that the major labels refused to license their catalogues to competing music service providers.

The investigation was overtaken by the launch of iTunes, and with it Apple's creation of a licensed market for digital music downloads. The DoJ formally concluded the probe in December 2003 with a few harsh words at the subscription offerings. While investigators couldn't find support for price fixing, the services were extremely unpopular and loaded with restrictions.

This backed the idea, the DoJ suggested, that the goal of the programs was to "impede the growth of the Internet" for music distribution, and steer users back to the "bread and butter of the music industry"; physical CD sales.

But that's a luxury the major labels don't have today. With physical sales of sound recordings showing a 25 per cent year-on-year decline, labels are prepared to lose many of their traditional paranoia and technophobia, and take the risk. They have nowhere left to go.

Today it's the harsh economic reality of doing business that most hampers the launch of licensed services that can effectively compete with free ones.

Only huge telecomms companies and large global hardware manufacturers - Apple, Nokia and Sony are all individually much larger than the entire record industry - can afford to license the music. As so often, the internet is portrayed as redistributing power from the few to the many; but with music, it may simply concentrate power with a small number of players. One or two faces may change. ®