Labels Inflating Music Subscription Prices?

Digital music industry officials are complaining that the record industry's alleged collusion extends into the subscription business as well, the Wall Street Journal reported on Thursday. According to industry insiders, the record companies are using "most favored nation" clauses in contracts to keep prices artificially high.

The clauses would allow another label to benefit from better licensing terms if a competing label renegotiates with a digital music provider. However, since the terms appear in just about every contract these providers have negotiated, it has the net effect of increasing the cost to procure music for these services.

Retailers use these clauses to ensure better prices on products they buy at wholesale. However, when the manufacturer or supplier use them, it has the completely opposite effect, say critics. "Seller-side MFNs are inherently price increasing and anticompetitive," Digital Media Association executive director Jonathan Potter told the paper.

There is no way of finding out which labels are employing the practice, as a clause within the contracts prevents their public disclosure. However, if an investigation were launched, officials would likely be able to gain access to the agreements.

The Wall Street Journal was able to obtain a copy of a Universal Music Group terms sheet which underlines how steadfast the labels may be on MFN status: "UMG will receive an MFN for all material terms." A spokesperson for the company said that such action is done to protect their artists from being "used and exploited in new and different ways."

But labels are becoming increasingly more aggressive in negotiating MFNs with digital music providers. Record companies are also trying to add more restrictions on how services can use their content.

According to the WSJ's sources, Universal Music Group and Sony BMG are two of the most aggressive in this practice.

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