"The FTC estimates that U.S. consumers may have paid as much as $480 million more than they should have for CDs and other music because of these policies over the last three years. These settlements will eliminate these policies and should help restore much-needed competition to the retail music market, consisting of $15 billion in annual sales. Today's news should be sweet music to the ears of all CD purchasers," said Chairman Robert Pitofsky.

According to the FTC's complaints, the companies required retailers to advertise CDs at or above the MAP set by the distribution company in exchange for substantial cooperative advertising payments. The restrictions applied to all advertising, including television, radio, newspaper and signs and banners within the retailers' own stores. The restrictions even applied to advertising funded entirely by the retailer. Under the policies, large music retailers would lose millions of dollars a year if they failed to follow the MAP restrictions.

The complaints detail how MAP policies were adopted to squelch discount music retailing. In the early 1990s, many new music retailers, including major consumer electronics stores, started to sell CDs at low prices to gain customers and market share. The more traditional music retailers also lowered their prices to compete. This retail "price war" led to lower CD prices for U.S. consumers as prices for popular CDs fell as low as $9.99. The record companies adopted the MAP policies in 1995-96 to extinguish this "price war," the Commission contends.

The FTC alleges these MAP policies achieved their unlawful objective. The "price war" ended shortly after the policies were adopted and the retail price of CDs increased. The distributors then increased their own prices, and since 1997, wholesale prices for music have increased.

The FTC's complaints state that the MAP policies imposed by each distributor violated Section 5 of the FTC Act, as unreasonable restraints of trade under the so-called "Rule of Reason," and that the MAP policies together were unlawful "facilitating practices" which increase the risk of collusion or interdependent conduct by the market participants.

The proposed settlements would prohibit all five companies from linking any promotional funds to the advertised prices of their retailer customers for the next seven years. For the next 13 years after that, the companies would be prohibited from conditioning promotional money on the prices contained in advertisements they do not pay for. The agreements also would prohibit the companies from terminating relationships with any retailer based on that retailer's prices.