Seattle - August 8, 2000 -Washington and 29 other states and territories today accused some of the nation’s largest recorded-music distributors and retailers of illegally fixing compact disc prices charged by retailers, Attorney General Christine Gregoire said.
A lawsuit filed by state attorneys general in U.S. District Court in New York accuses distributors and music labels of engaging in a scheme to stop some non-traditional music retailers—such as Best Buy, Circuit City and Target—from offering compact discs at deep discounts.
The complaint seeks monetary damages on behalf of consumers, and the assessment of civil penalties against the companies. The exact amount of damages will be determined when the case goes to trial.
"The recording industry has been aggressive in its efforts to prevent people from obtaining copyrighted music off the Internet without paying for it," Gregoire said. "We want to be sure that music distributors also play by the rules and don’t stifle competition by forcing all retailers to sell music to consumers at exorbitant prices."
The complaint targets "minimum advertising price," or MAP, policies, in which distributing companies withhold advertising reimbursements from merchants who sell compact discs at prices lower than those set by distributors.
Until the mid-1990s, MAP policies by individual recording companies proved ineffective in stifling price competition between discount and other music retailers. According to the complaint, one traditional music retailer estimated that the average price of CDs declined by as much as $5.
Then, in 1995, an industry leader called for joint action between distributors and traditional music retailers—whose business is almost exclusively the sale of recorded music—to develop and strictly enforce market-wide MAP policies. That joint action "transformed their MAP programs into blunt and effective instruments for putting an end to price competition," the complaint alleges.
To enforce compliance, distributors withheld advertising reimbursements for 60 to 90 days each time a retailer violated the policy. Further, the complaint states, a violation of the MAP policy by a single store could jeopardize an entire chain.
According to investigators, retailers who didn’t comply could lose millions of dollars a year in advertising funds.
Because the severe penalties were stringently enforced, and because most retailers needed the cooperative advertising funds, even the most aggressive discount music retailers eventually stopped selling CDs at discount prices.
Named in the lawsuit are affiliated labels BMG Music, Bertelsmann Music Group Inc., Capitol Records Inc., which does business as EMI Music Distribution; Virgin Records America Inc.; Priority Records, LLC; Sony Music Entertainment Inc.; Universal Music & Video Distribution Corp.; Universal Music Group Inc.; UMG Recordings Inc.; Warner-Elektra-Atlantic Corp.; Warner Music Group Inc.; Warner Bros. Records Inc.; Atlantic Recording Corp.; Elektra Entertainment Group Inc., and Rhino Entertainment Co.
Also charged were retail outlets MTS Inc., which does business as Tower Records;
Musicland, which operates more than 1,300 retail outlets under the Musicland and Sam Goody trade names; and Trans World, which operates more than 900 stores under the names Camelot, FYE, Music & Movies, Planet Music, Record Town, Saturday Matinee, Spec's Music, Strawberries and the Wall.