AGO sues price-fixing CD manufacturers

The nation’s largest manufacturers and distributors of recorded music conspired with various retailers to fix the prices of their products, Attorney General Herbert D. Soll and his counterparts in 30 other states and territories charged yesterday.

According to an antitrust complaint filed in New York federal court, the companies engaged in an unlawful scheme designed primarily to stop retail outlets such as Best Buy, Circuit City and Target from offering music at deep discounts.

The emergence of these discount music outlets in the early 1990’s began to offer stiff competition to mall-based music stores selling at high list prices, often “suggested’ by manufacturers or distributors.

To prevent this price competition, the distributors and their labels established minimum advertised price (MAP) policies in 1992. These initial MAP policies withheld distributors’ reimbursements for advertising expenditures by retailers if the advertised price for a particular product was not at or above the distributors’ prescribed price. The policies were legal, but ineffective at quashing price competition.

The complaint charges the illegal scheme began in February 1995, after a speech at the convention of the National Association of Recording Merchandisers (NARM). In his speech, Musicland chief executive officer and NARM president Jack Eugster called for joint action between distributors and retailers to combat lower recorded music prices on both the wholesale and retail levels.

Following the NARM convention, “traditional retailers. . . continued to press the major distributors to ‘strengthen’ their MAP programs”. New, stronger MAP policies resulted, and were essentially those proposed by Eugster. The traditional retailers also were instrumental in pressuring each of the major distributors to adopt substantially equivalent MAP policies so that they applied market-wide, the complaint says.

The distributors then “transformed their MAP programs into blunt and effective instruments for putting an end to price competition.”
They did so in large part by expanding the reach of MAP policies well beyond just print and electronic media to include all forms of in-store promotion. That change effectively prevented retailers from communicating discount prices to consumers through any means other than the price sticker on the CD itself.

To enforce compliance, a single violation by a retailer would result in the loss of all promotional funds available from the distributor for 60 to 90 days. Moreover, the complaint says, a violation at a single store would jeopardize promotional funds for an entire chain. Non-complying retailers faced the loss of millions of dollars per year in advertising funds through these illegal actions.

The defendants are most of the big names in the music recording and distribution industry, including BMG Music, Bertelsmann Music Group Inc., Capitol Records Inc. (doing business as EMI Music Distribution), Virgin Records America Inc., Priority Records, LLC, Sony Music Entertainment Inc., Universal Music & Video Distribution Corp., Universal Music Group Inc., UMG Recordings Inc., Warner-Elektra-Atlantic Corp., Warner Music Group Inc., Warner Bros. Records Inc., Atlantic Recording Corp., Elektra Entertainment Group Inc., and Rhino Entertainment Co.

Also charged were retail giants Musicland, which operates more than 1,300 retail outlets under the Musicland and Sam Goody trade names, Trans World, which operates more than 900 stores under the names Camelot, PYE, Music & Movies, Planet Music, Record Town, Saturday Matinee, Spec’s Music, Strawberries and the wall, and MTS Inc. (doing business as Tower Records.)

The complaint further targets unnamed co-conspirators both known and unknown and calls for the awarding of triple damages to consumers and the assessment of civil penalties and attorney’s fees against the companies. If found liable for treble damages under the act, a substantial damage award would be likely.

The states and territories charging the companies with antitrust violations include Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Mexico, New York, North Carolina, Northern Mariana Islands, Oklahoma, Pennsylvania, Puerto Rico, Rhode island, South Carolina, Texas, Utah, Vermont, Washington, West Virginia, and Wisconsin.

Those seeking further information should contact David Lochabay, consumer counsel, at 664-2341.