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Wed, Aug 08, 2001 - Page 19 News List

Recordingcompany Web plans prompt scrutiny

NY TIMES NEWS SERVICE , SAN FRANCISCOT

The efforts of five major record companies to join forces to sell their music over the Internet are inviting increasing attention from regulators and legislators who want to make sure that the companies do not engage in anticompetitive behavior.

In the latest development, the Justice Department, which overseas antitrust investigations, has been in contact with several of the companies, people close to the companies said Monday.

The disclosures coincide with a report in The Wall Street Journal on Monday that said the Justice Department had launched a preliminary investigation into two Internet ventures: Pressplay, backed by Sony Music and Universal Music Group, and MusicNet, backed by EMI, BMG and AOL Time Warner. But a Justice Department spokesman declined to comment Monday on whether an investigation was under way.

Legislators also are exploring the issue of music sales online. On Friday, Representatives Rick Boucher, Democrat, Virginia; and Chris Cannon, Republican, Utah, introduced legislation that would have an impact on the terms of a deal struck by the record companies when they license their music for sale through third-party Internet sites.

Under the legislation, if a label licensed music to one site, it would have to make the content available to other sites under the same terms.

"In combination with the Department of Justice investigation, this clearly is opening up a stronger set of regulatory and legislative concerns in the digital arena than labels have had before," said Eric Scheirer, a digital music industry analyst with Forrester Research, a technology industry research firm.

The scrutiny comes as music distributors are scrambling to overcome technological and business hurdles to start selling music over the Internet. Pressplay and MusicNet both have said they plan to launch services by the end of the summer that would let consumers download music over the Internet; the services would also license music from the record companies to other Internet sites that would effectively be third-party digital music retailers.

Representatives from Pressplay and MusicNet declined to comment on whether they are subjects of government inquiry.

Some smaller sites, and some industry observers, have worried the industry will collude to limit how they license their music over the Internet in such a way as to try to control the market, and ensure huge profits.

Indeed, experts in antitrust law said any government investigation into the record companies' move on to the Internet may not be borne of specific evidence of antitrust behavior, but of a more general practice of monitoring joint ventures among companies that dominate markets.

The five major record companies control roughly 80 percent of the domestic music market, counting what they themselves own and music they distribute but that is owned by other companies.

They are not new to regulator scrutiny. In 2000, for example, the Federal Trade Commission uncovered signs of price-fixing of compact discs among the major labels, a discovery that in turn helped spur an antitrust investigation earlier this year into the prices of compact discs in Europe by the European Commission, the EU's executive body.

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