Record Companies Investigated For Online Music Price Collusion by Justice Department - Compare Apple iTunes With Wal-Mart Licensing Agreements

March 5th 2006

Apple Allows for CD Case Creation

The United States Department of Justice (DOJ) is looking into whether the major music companies “colluded” in setting wholesale prices for digital Music downloads. This comes on the tail of Apple’s sale of their 1 billionth song off of their iTunes Website.

The DOJ investigation follows a similar investigation by the New York Attorney General Eliot Spitzer. In a recent Fox News reports by Tim Arango, this could have stemmed from a “very public spat between the music industry and Apple chief Steve Jobs over pricing on the iTunes service, which charges 99 cents per track.”

Since December, Spitzer has widened his probe, formally asking for information from several online music services. According to a WWMT CBS News report, two record company officials say the investigation seems to be focusing on whether the labels are in cahoots when it comes to setting prices for tunes.

Greg Sampson in the Jurist, reports that although the Justice Department has not yet released an official announcement of the probe, they have already issued subpoenas to four major record labels: EMI, Sony BMG, Universal and Warner Music. According to Sampson, the investigation is attempting to discern whether the labels are conspiring to keep the wholesale price of downloadable music artificially high.

Not all of the retailers sell the music for the same price or even offer the same licenses for their use. For instance, Wal-Mart offers their songs for just 88 cents each. According to the Wal-Mart website you are licensed to burn a song to a CD 10 times. If you try to burn a CD after that, Windows Media® Player 9 will deliver a message indicating that you are not licensed to make any more burns to a CD.

Buying music from Apple iTunes is slightly more expensive. Apple charges 99 cents per download, but you can burn the songs to CD / DVD as many times as you like. From the Apple website: Unlike some applications that limit the number of CDs you can burn, iTunes lets you burn as many custom CDs as you like. And iTunes prints pro-quality inserts to accompany your mix.

So although the record companies may have the appearance of collusion, the retailers do not. There is heavy competition among retailers including Google who now offer videos and even current TV series shows. Competition is good, and the point to the Justice Departments investigation is to determine if record companies are trying to fix prices. This may become harder to prove once the record companies begin charging different prices for different songs.