The world's five largest music companies and the three largest music retailers will pay $67.4-million (U.S.) in cash to settle a CD price fixing case launched by New York and Florida two years ago, New York Attorney-General Eliot Spitzer said yesterday.
In August, 2000, 43 U.S. states and commonwealths said an industry practice called "minimum advertised pricing" (MAP) artificially inflated the price of CDs between 1995 and 2000, violating federal and state antitrust laws. MAP is a system under which the labels subsidized advertising for retailers that agreed not to sell CDs below a minimum price determined by the labels.
The five record labels -- Vivendi Universal SA's Universal Music Group, Sony Corp.'s Sony Music, Bertelsmann AG's BMG Music Group, AOL Time Warner Inc.'s Warner Music Group and EMI Group PLC -- and the three retailers, Musicland Stores Corp., Trans World Entertainment Corp. and Tower Records, have agreed to stop using MAP policies as part of the settlement.
Brad Maione, Mr. Spitzer's spokesman, said the companies did not admit any wrongdoing.
The cash settlement will be paid to the 43 states. The companies also agreed to distribute $75.7-million worth of CDs to public entities and non-profit organizations in all 50 states.
"This is a landmark settlement to address years of illegal price-fixing," Mr. Spitzer said in a statement. "Our agreement will provide consumers with substantial refunds and result in the distribution of a wide variety of recordings for use in our schools and communities."
In a May, 2000 settlement with the U.S. Federal Trade Commission, the five labels agreed to ban the MAP policy for seven years. The settlement did not require the labels to pay any damages, nor did the labels admit any wrongdoing.
In the mid-1990s, large department stores and consumer electronics retailers began selling CD's below cost as a "loss leader," in an effort to get people into the store to buy big-ticket items, the labels have said in the past.
The labels have said MAP policy helped smaller retailers compete with chains like Wal-Mart Stores Inc., Circuit City Stores Inc. and Best Buy Co. Inc. They argued that smaller retailers do not have the option of offsetting losses from cut-price CD sales with the sale of other products.
The original states filing the suit were led by New York and Florida and joined by Arizona, Arkansas, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Mississippi, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Washington, West Virginia and Wisconsin.
The U.S. territories Northern Mariana Islands and Puerto Rico were also included.