Probe may delay change in digital-music prices

New York State begins inquiry as labels increase pressure on online music stores to change their standard 99 cents per song pricing structure.

A New York state antitrust probe of record labels' digital-music pricing is coming at a critical time for the online music business and could delay a move away from the industry's familiar price tag of 99 cents per song, legal experts say.

The investigation, launched by New York Attorney General Eliot Spitzer in late December, was revealed by the Warner Music Group in a federal securities filing last month. All four big labels, including Sony BMG Music Entertainment, EMI Music, Universal Music Group and Warner, have confirmed they've received Spitzer's requests for information, which represent a preliminary stage of investigation.

A trade group for digital-music services said Tuesday that its members have now also received information requests.

"Everybody expects to be contacted, and some already have been," said Jonathan Potter, executive director of the Digital Media Association, which represents companies including Yahoo, Apple Computer and America Online. Potter said the inquiry has the potential to be "full-blown."

News.context

What's new:
New York state's antitrust probe of digital-music pricing has stalled record labels' plans to move away from the 99-cents-per-song standard fee set by Apple.

Bottom line:
Some in the music industry view the antitrust probe as a warning to the labels not to collude on pricing, but observers also say the prospect of further investigations could dampen enthusiasm for changes in the per-song pricing structure.

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The DiMA director declined to specify which member companies had been contacted. Several Net companies, including Yahoo, Napster and Apple, also declined to comment on whether they had received requests from Spitzer's office. A representative for Spitzer also declined to comment. A Warner representative said in a statement that "as disclosed in our public filings, we are cooperating fully with the inquiry."

The probe comes at a crucial juncture in the relationship between record labels and online music stores, a moment when the all-but-standard 99-cent, one-price-fits-all model pioneered by Apple's iTunes store has come under increasing pressure from the labels .

Music executives have said they want to be able to respond to market forces with more flexibility, such as charging more than 99 cents for top singles, or less for slow-moving older songs.

Apple has said the simple and accessible iTunes pricing structure helps introduce new consumers to digital music. And in September of last year, Apple CEO Steve Jobs said that if the labels want to raise prices, "it means that they are getting greedy."

Currently, labels charge a variety of wholesale prices that can range upward of 75 cents per track, industry sources have said. However, it's the retailer, such as Apple, Walmart.com, or RealNetworks, that decides what price individual consumers will pay.

In recent weeks, online-music executives have said they expect at least one record label to begin experimenting with variable wholesale pricing early in 2006. But some said the Spitzer announcement could now change that plan.

A source familiar with the investigation said Spitzer was focusing on labels' pricing decisions and is seeking e-mails and other communications that deal with setting prices for online sales.

Under state and federal antitrust laws, record labels are not allowed to work together to set prices for music. Any evidence that

 

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