MUSIC DISTRIBUTORS, RETAILERS CHARGED WITH PRICE-FIXING
Baltimore - Attorney General J. Joseph Curran, Jr., announced today that Maryland and 30 other states and territories have charged the nation's largest distributors of recorded music with conspiring with various retailers to fix the prices of their products.
An antitrust complaint was filed in New York federal court against distributors and affiliated labels BMG Music, Bertelsmann Music Group Inc., Capitol Records Inc. (doing 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 giants Musicland, which operates more than 1,300 retail outlets under the Musicland and Sam Goody trade names, 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, and MTS Inc. (doing business as Tower Records.) The complaint further targets unnamed co-conspirators "both known and unknown" and calls for the awarding of triple damages to consumers and the assessment of civil penalties against the companies.
The companies are charged with engaging in an unlawful scheme designed primarily to stop retail outlets such as Best Buy, Circuit City and Target from offering music at deep discounts. The emergence of such recorded music outlets in the early 1990's began to offer stiff competition to mall-based music stores.
"My main concern is that consumers have a fair marketplace in which to shop," Attorney General Curran said. "Competition is the backbone of a free market system and no company or group of companies should be allowed to eliminate it to increase their own profits."
According to the complaint, the distributors and their labels established minimum advertising price (MAP) policies in 1992. The initial MAP policies withheld distributorsí reimbursements for advertising expenditures by retailers if the advertised price for a particular product was not at or above the distributorsí prescribed price. The initial MAP polices were legal, but ineffective at quashing price competition.
According to the complaint, the illegal scheme began in February 1995 after a speech at the convention of the National Association of Recording Merchandisers (NARM). In his speech, Musicland Chief Executive Officer and NARM President Jack Eugster called for joint action between distributors and retailers to combat lower recorded music prices on both the wholesale and retail levels.
Following the NARM convention, "traditional retailers... continued to press the major distributors to strengthen their MAP programs" the complaint says. Furthermore, key elements of the new, stronger MAP policies were essentially those proposed by Eugster. These traditional retailers also were instrumental in pressuring each of the major distributors to adopt substantially equivalent MAP policies so that they applied market-wide, the complaint says. The complaint charges that the distributors "transformed their MAP programs into blunt and effective instruments for putting an end to price competition." They did so in large part by expanding the reach of MAP policies well beyond just print and electronic media to include all forms of in-store promotion. That change effectively prevented retailers from communicating discount prices to consumers through any means other than the price sticker on the CD itself.
To enforce compliance, a single violation by a retailer would result in the loss of all promotional funds available from the distributor for 60 to 90 days. Moreover, the complaint says, a violation at a single store would jeopardize promotional funds for an entire chain. Non-complying retailers faced the loss of millions of dollars per year in advertising funds.
The other states and territories charging the companies with antitrust violations include Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Mexico, New York, North Carolina, Northern Mariana Islands, Oklahoma, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Texas, Utah, Vermont, Washington, West Virginia, and Wisconsin.