Antitrust Settlement with Record Distributors and Retailers

This case is fascinating: from the original FTC investigation, the workings of MAP (minimum advertised price), the 42-state law suit on behalf of millions of consumers, to the settlement in the form of cash and a whole bunch of CDs - the distribution system of which will be a byzantine endeavor.

It has also been determined that if the value of the average claim drops below $5, then the entire settlement will be distributed in via the "cypres doctrine" - ie the cash would also be "given away," probably to libraries and schools, which would provide maximum public good.

Many questions emerge: what about royalties to songwriters and artists? A spokesperson for the NY Attorney General's office said that the giveaways would fall under the "free goods" provision of artists' contracts and there would be no royalties. I have spoken with a representative of songwriters and publishers, who said "we are due payment for any CD that has been "permanently parted with" paid for or not. No 'free goods' reductions exist in mechanical licenses. By my calculations they owe us $5,600,000. (7 million CD X 10 cuts per CD X 8¢ a track.)." Surely there is a confrontation/law suit lurking here, especially in light of the ongoing Cal Senate hearings on label accounting practices.

The labels are now getting it from both directions: artists (the Senate hearings, challenges from the Dixie Chicks, Courtney Love and consumers. In conjunction with the P2P mess (for them), this is creating a massive squeeze that should greatly precipitate a reordering of the industry structure/business model. They will simply be forced to change.

Some details: a Trans World executive told me that they were paying a small percentage of the settlement as a reflection of their relative guilt. A Florida attorney on the case told me Trans World's relatively small assessment was based upon their relatively small market share - not relative guilt - and also on their poor financial situation, i.e. nothing to do with relative guilt. So spin is a big issue here as well.

This story is a synecdoche for the state of the industry as a whole: violations of trust, accusations, arrogance, then settlement in the face of overwhelming evidence, leading to real change.

This an absorbing tale of corporate intrigue, governmental response, and an industry about to be pushed over the edge. This story could even be the edge. (introduction added 10/1)

Press release from the Tennessee Attorney General's office:

TENNESSEE ATTORNEY GENERAL WINS ANTITRUST SETTLEMENT IN LAWSUIT ALLEGING PRICING CONSPIRACY ON MUSIC CDS

Tennessee Attorney General Paul G. Summers announced today that five of the largest U.S. distributors of pre-recorded music CDs and three large retailers agreed to pay millions of dollars in cash and free CDs as part of an agreement on price-fixing allegations.
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Article Author: Eric Olsen

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