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Major Labels Settle CD Price-Fixing Suit

2 Oct, 2002 By: Tamara Coniff

The distribution companies of the five major label groups and three national retail chains have agreed to pay $143 million in cash and free CDs to 42 states to settle price-fixing allegations.

The companies, which include Warner Music Group, Universal Music Group, BMG, EMI, Sony and select retailers, will pay $67.4 million in cash and provide 6 million CDs valued at $75.7 million, which will be divided among the states. Additionally, as part of numerous class-action suits filed by consumers, record buyers in all 50 states will share in the settlement.

"This is a landmark settlement to address years of illegal price fixing," New York State Attorney General Eliot Spitzer said. "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 separate statements issued by WMG, UMG, EMI and BMG, each company said the settlement does not imply any wrongdoing on the part of the labels, and all maintain that their minimum advertised price, or MAP, practices were fully legal. Sony declined comment.

"We have made a business decision to settle these matters and avoid continuing with expensive and protracted litigation," an EMI representative said. "We continue to believe that EMI's MAP program was lawful, and we deny any wrongdoing by EMI."

A UMG spokeswoman said: "UMG believes that its MAP policies would have been found by the court to be legal and in complete compliance with both state and federal antitrust laws. We believe our policies were pro-competitive and geared toward keeping more retailers, large and small, in business." UMG will pay royalties to artists and songwriters featured on the CDs that are part of the settlement, the spokeswoman said.

In August 2000, 30 states filed suit against the big five, alleging that they engaged in illegal CD price fixing in violation of state and federal antitrust laws. The plaintiff states -- which include Florida, New York, Arizona, Michigan, Pennsylvania, Texas, Washington and North Carolina -- sought to recover damages to consumers that, according to Federal Trade Commission estimates, could have amounted to $480 million.

As part of the agreement, which settles all claims, UMG will pay about $18 million in cash and $21 million in CD value, WMG will pay $13 million in cash and $15 million in CD value, BMG will pay $13 million in cash and $17 million in CD value, Sony will pay $12 million in cash and $14 million in CD value, and EMI will pay $6 million in cash and $8.5 million in CD value. These amounts are based on market share. The CD value is based on retail price minus 20 percent.

An EMI spokeswoman said this resolution was anticipated and that EMI has budgeted accordingly; therefore, the settlement will have no impact on EMI trading results.

National retail chains Transworld Entertainment and Musicland could not be reached for comment.

A Tower spokeswoman said: "The payment made by Tower Records was the least of any of the defendants, $275,000, and we settled in order to avoid the cost of litigation, which would have been far greater. We have always believed that the claims against Tower asserted in the litigation are meritless, and, consequently, we have denied and continue to deny the allegations."

The 2000 suit, filed in New York federal court, stemmed from the FTC's investigation of the label groups' policies of linking retailer promotional funds to minimum advertised prices. The labels reached settlement agreements with the FTC in May 2000 (HR 5/11/00). The suit alleged that, in response to the price wars brought on by such electronics chains and discount stores as Circuit City, Target and Wal-Mart during the early 1990s, the major labels implemented MAP policies as a result of pressure from traditional retail stores that claimed the chains were hurting their business.

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