The US Justice Department said Monday that it was investigating whether the major record companies were engaged in anti-competitive practices in the nascent online music market.
The acknowledgment of the investigation comes in the week after antitrust regulators sent civil subpoenas to companies within the music industry seeking documents pertaining to the licensing of music for distribution over the Internet, such as how royalties are being set, record industry officials said.
The investigation has caused little surprise to the industry, or to its fledgling online competitors, given the enormous market power of the five major record companies. Together they control distribution for about 80 percent of the domestic market, and they have sought to extend their businesses onto the Internet.
Gina Talamona, spokeswoman for the antitrust division of the Justice Department, said the government was looking in particular at "the competitive effects of certain joint ventures in the online music industry."
The major record companies have created two joint ventures, Pressplay and MusicNet, that they plan to use to distribute online music to which they hold copyrights. Pressplay is owned by Sony Music Entertainment and Vivendi Universal, while MusicNet is a joint venture between AOL Time Warner, Bertelsmann, EMI Group, and Real Networks.
Seth Oster, spokesman for Pressplay, said the company received a letter from the Justice Department and was "cooperating fully."
Oster said the company "strongly believes" that it has engaged in no anti-competitive behavior and understands that investigations like this are routine. MusicNet has also received a letter and is "cooperating with requests," said Ann Garrett, a spokeswoman.
Cary Sherman, the general counsel for the Recording Industry Association of America, which represents the major labels, said Monday that his organization received one of the civil subpoenas, and is cooperating.
He said the industry had been "very careful to ensure that we are operating strictly within confines of antitrust law." He added, "Our activities have been pro-competitive."
It is a contention with which some competitors, and some analysts, take issue. Some online music startups say they have had trouble securing licenses to sell music online.
Among the critics has been Napster, the once explosively popular free music exchange, which was successfully sued by the record labels for abetting copyright infringement. Napster, which has been off line since a court order in July, is now seeking to build its own for-pay service.
Officials from Napster praised the Justice Department for "stepping up its effort" against the labels. The company got a boost last week against the record companies when the judge in the infringement case, Marilyn Patel, questioned whether the industry might be misusing their copyrights in an anti-competitive fashion.
On a more general level, critics of the record companies say they have used the courts and their market power to position themselves to take over distribution of music on the Internet.
In the physical world, the record companies do not own radio stations, and have almost no financial interest in record retailers, but they could wind up with greater control of the online analogues: Internet sites that broadcast music like radio stations, and online retailers that sell songs for download or streaming.
"What they are trying to do," said Aram Sinnreich, an industry analyst with Jupiter Media Metrix, "is own the entire distribution channel."
Eric Scheirer, an analyst with Forrester Research, also said that the issue clearly merited investigation, but he said it was not clear that the evidence would support taking action against the record companies.
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