The United States attorney general, Alberto Gonzales, has launched a wide-ranging investigation into allegations that record labels are fixing the prices of music downloads.
The department of justice inquiry centres on the activities of the four largest record labels: EMI, Sony BMG, Universal and Warner Music. Subpoenas are believed to have been issued to all parties, with federal officials understood to be focusing on whether the companies have been colluding to keep the price of downloads artificially high.
Tracks from the major labels are sold wholesale for around 80 cents US each. The prices online stores then market tracks at varies, but in the case of Apple’s iTunes Music Store, which dominates the industry with about 80% of sales, tracks can be picked up for 99 cents.
Many attribute the recent success of the download industry to Apple, which has tied its online shop to the iPod music player, which has sold more than 42-million units worldwide. Last month the iTunes Music Store achieved the landmark of 1-billion songs sold.
Apple’s chief executive, Steve Jobs, has accused major labels of being greedy, and indicated that they have attempted to force an increase in the price of some downloads.
”Music companies make more money when they sell a song on iTunes than when they sell a CD,” Jobs said last year. ”If they want to raise prices, it’s because they’re greedy. If the price goes up, people turn back to piracy — and everybody loses.”
The inquiry comes after New York’s attorney general, Eliot Spitzer, launched a similar investigation late last year. Spitzer’s office refused to comment on either investigation on Friday, but it is understood that both are taking a similar approach.
It is not the first time the justice department has looked into music downloads. An inquiry was launched in 2001 after complaints from independent retailers that the major labels were excluding them in order to boost their own attempts at internet retailing. That did not result in any action, but legal experts say things may be different this time around.
”If there is collusion in an industry, then when the competition authorities have intervened you would expect to see significant price benefits for consumers,” said Christopher Thomas, a competition law partner with Lovells. ”But it’s one thing to say that prices are higher than consumers like them to be, quite another to say it’s collusion.
”Because this is essentially a worldwide market, it would be reasonable to expect that if the US investigation progresses, it will trigger a similar one in Europe.”
The European commission is already undertaking an inquiry into the cost of iTunes tracks, following complaints about the price difference between the UK, mainland Europe and the US.
Representatives for the major labels were unavailable for comment, while Apple said it refuses to discuss ongoing investigations.
Backstory
The ability to buy music on the internet has existed for years, but its popularity has exploded since the launch of Apple’s pioneering iTunes Music Store in 2003. Before that, only a handful of digital music tracks were being sold legally on the internet, mainly through small record labels. However, the increasing popularity of Apple’s iPod music player, combined with heavy marketing has stimulated sales to the point where downloads are now incorporated into the charts alongside physical singles sales. Growth is getting faster all the time. Within a week of launching the American service, Apple sold more than 1-million tracks. It took more than a year for it to reach 100-million, but since then the speed of change has increased exponentially. By July 2005, 500-million tracks had been sold and last month the figure exceeded 1-billion downloads. – Guardian Unlimited Â