January 4, 2006 4:00 AM PST
Probe may delay change in digital-music prices
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executives had agreed to offer similar terms or wholesale prices to companies like Apple and Napster could trigger an antitrust lawsuit against the companies.
Just a warning?
Spitzer's investigation marks the second time in recent years that the big labels have been under a legal microscope specifically for their digital-music dealings. (They've also settled CD price-fixing charges with the Federal Trade Commission and state attorneys general, and two labels have settled with Spitzer's office over payola charges.)
In 2001, following the creation of two separate label-backed digital-music services, federal antitrust investigators launched an investigation into whether labels were working together against competing online services. That inquiry closed two years later with a statement from the Department of Justice saying investigators had found no evidence of pricing collusion.
Much has changed in the past four years, however. Record labels have seen their CD sales fall substantially, despite a slight uptick in 2004. Apple's iTunes has meanwhile sold hundreds of millions of songs, while capturing and retaining a more than 70 percent share of the market for digital-song sales.
Perhaps significantly, there have been few recent calls from online-music companies for this kind of antitrust inquiry, compared with a full-fledged lobbying effort in the early part of the decade. Many in the industry said Spitzer's action had come as a surprise, compared with the Justice Department's previous investigation.
Attorneys speculated that Spitzer could be issuing a warning to labels--several of which have made it clear they want wholesale pricing changes--that they can't pursue these changes together in any way.
"This may simply be a shot across the bow," said Michael Graham, an attorney with Marshall, Gerstein & Borun in Chicago. "Spitzer may be saying, 'Guys, we've caught you twice before, and we know you would never try it a third time, but we're going to make sure.'"
Even in the absence of illegal cooperation among the labels, the investigation could dampen the labels' enthusiasm for industrywide pricing changes in the near future, some legal experts said.
"We don't have any evidence that they were planning to collude," said attorney Christopher Norgaard, of Ropers Majeski Kohn & Bentley in Los Angeles. "But now they have to realize that what they do is going to be under the potential spotlight of Spitzer's office and anyone else who might be watching."
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