DOJ Investigating Digital Music Prices

The U.S. Department of Justice has opened up an collusion inquiry to investigate the digital music prices set by four major record labels, the Wall Street Journal reported on Friday. While at this time it does not appear to be a criminal investigation, "civil investigative demands" -- similar to subpoenas -- have been sent to all parties.

Universal Music Group, Sony BMG, EMI, and Warner Music have received these notices. According to sources close to the case, the investigation is similar to one being carried out by New York Attorney General Eliot Spitzer. A Justice Department spokesperson said that antitrust lawyers are looking into the possibility of anticompetitive practices.

However, the record companies may only be the start of an investigation. The report indicated that Justice Department lawyers might be also interested in looking into "vertical collusion" as well. This implies some kind of unspoken deals between music services and record labels.

But some online music stores may beg to differ with that notion. Steve Jobs last September called record labels "greedy", and vowed to keep individual song prices at 99 cents despite pressure to relax on that requirement.

"We're trying to compete with piracy, we're trying to pull people away from piracy and say, 'You can buy these songs legally for a fair price,'" Jobs said. "But if the price goes up a lot, they'll go back to piracy. Then everybody loses."

At least for the time being, the onus appears to be on the labels themselves. If the case is indeed similar to the New York query, the labels may need to defend their wholesale pricing, as well as their practice of "most favored nation" clauses in music service contracts.

So-called MFN clauses allow record labels to receive the same favorable terms as its competitors after they renegotiate their deals, without having to sit at the bargaining table. This has resulted in music services complaining to both state and federal authorities questioning the legality of such a practice.

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