The Justice Department has intensified its antitrust investigation of the music industry’s licensing practices, demanding that industry organizations and online companies submit a slew of documents related to Internet music services.
The department recently began sending out “civil investigative demand” letters, hunting for evidence of collusion by record companies and affiliates to impede competition. The recipients of the letters include the Recording Industry Assn. of America, at least two Internet companies and MusicNet, an online music distributor jointly owned by three major labels and RealNetworks Inc.
The growing demand for online music services has led the conglomerates that own the major record companies to create their own channels for distribution. AOL Time Warner, Bertelsmann and EMI Group formed MusicNet, and Universal Music Group and Sony Corp. created Pressplay.
The inquiry appears to revolve around two questions: Why are MusicNet and Pressplay the only ventures to receive licenses for a significant amount of major-label music? And what, if anything, did the labels do to inflate their royalties from online radio services?
The record companies’ defenders say the labels have been cautious in licensing, but they haven’t colluded to limit competition. “I don’t see it, and I haven’t experienced it,” said Robin D. Richards, chairman and chief executive of MP3.com, a maverick online music company that was acquired in August by Vivendi Universal and has a distribution deal with Pressplay.
But executives at several online companies say they have had mixed experiences with the labels and that some act fairly and some don’t. The result, they say, is that the labels’ online ventures–MusicNet and Pressplay–are launching this year without any real competition.
The industry’s licensing practices also have drawn criticism from some influential lawmakers, including leaders of the House and Senate Judiciary committees. In addition, the federal judge presiding over the industry’s copyright-infringement lawsuit against Napster Inc., the embattled online song-sharing service, recently said the labels’ licensing actions could make them vulnerable to accusations of copyright abuse.
The law doesn’t force a label to grant other companies the rights to its song, copyright experts say. What investigators are probing is whether the labels have used their exclusive rights over music to slow or stop competitors in a new field, namely, the distribution of songs over the Net.
The Justice Department could not be reached Sunday for comment. A spokesman for the RIAA said, “We intend to cooperate fully” with the investigation.
Spokesmen for two of the major labels–Universal Music Group and BMG Entertainment–declined to comment on the investigation. Officials at two others–Sony Music and Warner Music Group–could not be reached.
Those companies have announced few deals with online music distribution services comparable to the ones they’ve made with Pressplay and MusicNet. The only major label signing significant licensing deals is EMI.
Ted Cohen, vice president of new media at EMI Recorded Music, said, “I think we’ve been very fair in our negotiations, giving the big guys and the little guys a chance to launch. We’ve worked very hard to make sure it’s a competitive landscape.”
Justice Department attorneys started conducting interviews about the labels’ licensing practices more than eight months ago, responding to complaints from online music companies. The investigators’ interest picked up in early April, sources said, when the owners of MusicNet announced its formation.
A more formal probe didn’t begin, however, until the government resolved a jurisdictional battle between the Justice Department and the Federal Trade Commission’s antitrust investigators. The Justice Department completed a final round of interviews with industry executives and online companies last month, then sent out a wave of civil investigative demand letters last week.
Among other things, the letters demand copies of all the proposed