Music Industry Investigated Over Pricing

By Nate Mook, BetaNews

December 24, 2005, 12:31 AM

The music industry has made no secret of its desire to raise prices of legal music downloads, but the record labels have instead raised the ire of New York Attorney General Eliot Spitzer. Spitzer has subpoenaed the four major music companies as part of an investigation into collusion on the pricing of digital music.

Although Spitzer's office has made no public comments on the specific nature of its investigation, Warner Music Group revealed it had received a subpoena in a SEC filing on Friday. Sony BMG and Universal Music Group have also confirmed receiving the subpoenas, and sources say EMI has as well.

The "industry-wide" investigation likely centers on whether the four major record labels colluded to set the pricing of song downloads on iTunes and other online music stores. Currently, songs are usually priced at a flat 99-cent rate, but the industry has pushed for higher prices.

At the Apple Expo in Paris in September, Steve Jobs called the labels "greedy" and said iTunes was "trying to compete with piracy." He added that, "if the price goes up a lot, they'll go back to piracy. Then everybody loses."

But that hasn't stopped the pressure facing Apple as it endeavors to renegotiate its music contracts. In November, EMI Music CEO Alain Levy claimed that, "There is a case for superstars to have a higher price," saying, "the issue is when."

Most critics view the demand as an affront to raise prices across the board, while only lowering the price on acts that very few listeners will purchase.

Some smaller labels have gone even further in voicing their disapproval, saying such a move could kill the digital music business altogether and wipe out indie music companies that are already struggling in a tough industry.

Analysts suggest that Spitzer's investigation is fueled by complaints from such small labels and music services like iTunes. Record companies are reportedly charging wholesale prices of between 67 and 82 cents per song, leaving little profit to begin with.

"As part of an industry-wide investigation concerning pricing of digital music downloads, we received a subpoena from Attorney General Spitzer's office as disclosed in our public filings. We are cooperating fully with the inquiry," Warner Music Group said in a statement.

Sony BMG, meanwhile, said it "will respond to the Attorney General's subpoena request and intends to cooperate fully."

Spitzer has previously sued the big four labels over a "payola" scheme that involved sending payments and expensive gifts in exchange for radio airplay. Sony BMG paid $10 million to settle the case in July, while Warner Music settled for $5 million.