For several years, some consumers and financial analysts have accused the major record labels of moving too slowly on to the Internet. Now, the government and the companies' competitors are saying the labels may have moved online too aggressively.
Those accusations are behind an antitrust investigation, which the Justice Department disclosed last week. In essence, the government is exploring whether the recording industry is illegally trying to dominate distribution of music on the Internet.
Through two separate partnerships, the five major recording companies plan to roll out online music services that will sell access to their large catalogs over the Internet. One is Pressplay, a joint venture of the Sony Music Group and Vivendi Universal. The other is MusicNet, backed by Bertelsmann, EMI Records and AOL-Time Warner, the parent of Warner Music. The ventures, which previously assured consumers that they would start operating by the end of lat summer, plan to begin by the end of the year.
Access limited
Other online music distributors complain that the big music companies have been reluctant to give them access to their music. They say it is as if the big labels were opening stores and not letting any other store sell their music.
The Justice Department, in a rare confirmation of an inquiry in progress, said last week that it was investigating whether the industry was involved in anticompetitive practices. The department would not comment further, but people close to the inquiry and those who have received subpoenas said investigators were focusing on the labels' establishment of the two joint ventures and their reluctance so far to license their catalogs to competing Internet distributors.
Separately, the European Commission said last week that it was in the early stages of an inquiry into the recording industry's behavior.
At stake is the revenue stream now shared by recording companies, songwriters and publishers and conventional retailers. Largely through the copyrights they hold, the five big labels control 85 percent of the music distributed domestically in the physical world. The Internet, by permitting sale of music without the need for manufacturing CDs or shipping disks or tapes to retail stores, could transform the industry's economics.
"It is anti-competitive of the labels to use the leverage of their copyright ownership to prevent others from distribution as well," said Aram Sinnreich, a media analyst with Jupiter Research.
Recording industry officials say the very existence of two joint ventures, designed to compete against each other, indicates that the labels are not colluding -- particularly because the two ventures have fundamentally different business models.
MusicNet terms itself a wholesaler, through which other online music services will be able to set their own prices and subscription models -- like how much content users can download over what period. Pressplay is a consumer brand unto itself, dictating to its licensees -- Yahoo and MSN have already announced deals -- the price and subscription terms, which have not yet been announced.
Critics particularly chafe at the Pressplay model. But they also say that the major labels behind MusicNet, by the prices they set for their own offerings, will effectively be dictating retail prices.
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