[A2k] Wall Street Journal: U.S. Opens Probe of Pricing Of Online Music by Four Firms

[Thiru Balasubramaniam]

U.S. Opens Probe of Pricing
Of Online Music by Four Firms

By *ETHAN SMITH*
March 3, 2006; Page A12

Adding further scrutiny of the music industry's business practices, the
U.S. Justice Department has opened an investigation into possible
collusion in the ways the four global music companies set prices for
online music, according to people familiar with the matter.

A Justice Department spokeswoman, Gina Talamona, said that antitrust
enforcers are "looking into the possibility of anticompetitve practices
in the music-download industry."

As part of the inquiry, which doesn't appear to be a criminal
investigation, all four companies have either received so-called civil
investigative demands, similar to subpoenas, or have been notified they
will be receiving them soon. The investigative demands were sent out Monday.

People with knowledge of the investigation have said that it is similar
in important respects to an inquiry already under way by the office of
New York Attorney General Eliot Spitzer, which has issued two rounds of
subpoenas since December. The companies involved are *Vivendi
Universal*'s Universal Music Group; Sony BMG, a joint venture of *Sony*
Corp. and *Bertelsmann* AG; *EMI Group* PLC; and *Warner Music Group* Corp.

Depositions of music-industry executives have already been taken in the
Spitzer investigation, people close to the inquiry said.

The investigations come at a delicate time for the music companies,
which have only recently begun to come to grips with the need to embrace
digital-music sales as CD sales dwindle. They consider the transition
critical to their long-term survival.

The more recent set of subpoenas issued by Mr. Spitzer's office in
February focused on so-called most-favored-nation clauses used by music
companies in contracts with certain kinds of online music services,
according to people in the industry. Online music retailers have
complained that these clauses allow a music company to receive terms as
favorable as any of its competitors, without actually having to
negotiate the better terms itself.

Another area of possible interest is the notion of "vertical collusion"
between retailers, like *Apple Computer* Inc., which sells songs online
for 99 cents, and any given recorded-music company.