SharkJumping

Had to republish to correct misspelling in the title...

 

NY State Attorney General Spitzer is 2 for 2 in the last few years going after the music labels for various legal offenses which everyone knew were occurring, but which no political or legal entity seemed to want to address.  The labels/retailers settled retail CD (funny plastic disks sold in retail stores for high prices) price fixing charges in 2001 stemming from an FTC investigation, and then settled payola (paying traditional radio stations to play music) charges earlier this year, refusing to admit guilt, but paying fines to make the charges go away.  So now it's back to what Spitzer must call the easy win trough with the latest subpoenas to the labels about price fixing in the digital music business.

Having lived through 3 years of these negotiations, ending about 15 months ago when I left Real, I strongly believe the labels all know what the other labels are charging for various digital media licenses - in fact, at Listen.com, we pursued a private anti-trust case against the major labels for a year over some of these issues, particularly their refusal not to favor their own entities vs others, and their seeming inability to stop trading information between themselves.   However, I'm not sure (I'm not an Anti-Trust attorney, but my mother was one, so I get to pretend) that they are necessarily colluding to set prices since, as has been discussed in various articles, the download prices are somewhat different from contract to contract, as are some of the business terms, and I believe it's generally due to different strategies favored by each label rather than a far reaching conspiracy.

So what's going on here?  Various news articles have stated that this round of subpoenas stems from Apple's issues with label statements that they will raise digital download prices, as I discussed here.  I would say that Warner and UMG are certainly signaling (MBA geek-speak for actions which indicate something to competitors) wildly that they will do so in 2006, both to see what the reaction is, and to make it clear to others that it's coming.  I'm not sure I would focus on that issue as a Conspiracy one since it's difficult to prove unless Spitzer just wants a settlement rather than actually go to court on something for once. 

To me, the more relevant issue in a music label deal is the "Most Favored Nations" (MFN) clause, which is almost unheard of in normal business practices not inhabited by what I term serial monopolies.  This clause is fought tooth and nail by every licensee, but is rarely changed by labels - it states that the label can not receive terms worse than any similarly situated supplier (e.g. other label).  I used to refer to it as the "Lazy Business Development clause" since it effectively saves labels from actually negotiating the terms  - they just claim MFN and do an audit once a year if they think a competitor is getting better terms.   That's a bigger anti-trust issue than spending time worrying if the actual cost of a download is within $.05 of another supplier since it really doesn't matter if there is an MFN clause since terms will naturally become similar in that situation, and there isn't really a need to collude on pricing.

I'm curious to see how it all plays out since Spitzer has more balls than the Federal Anti-Trust appointees we dealt with in our private case, but my assumption is that the best case result is yet another fine which gets chalked up to the cost of doing business in the music sector.  As I have said many times, the digital music business does not allow licensees any leverage since they need all 4 (soon to be 3) labels to launch a service, and the resulting financial terms are painful for those companies, Spitzer lawsuit or not.