The agreement, announced Monday, settles charges by 43 states that the labels and three retailers violated antitrust laws by engaging in advertising practices that kept the prices of CDs artificially high.
"This is a landmark settlement to address years of illegal price-fixing," New York 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."
Under the agreement, record labels including Bertelsmann Music Group, EMI Music Distribution, Warner-Elektra-Atlantic, Sony Music Entertainment and Universal Music Group, along with retailers Transworld Entertainment, Tower Records and Musicland Stores, will pay consumers $67.3 million in cash and donate $75.7 million worth of CDs to charities and schools. However, the labels did not admit any wrongdoing.
The labels that would comment for the record called the settlement a sound business decision.
"We have made a business decision to settle these matters and avoid continuing with expensive and protracted litigation," Will Tanous, a spokesman for Warner Music Group, said in a statement.
BMG spokesman Nathaniel Brown said the settlement was the best way to resolve the issue and that the company continues to believe the disputed advertising and pricing policy is legal.
Record labels have come under increasing scrutiny for their pricing habits, especially as the Internet has made music distribution cheaper.
The Department of Justice is still investigating whether the labels' two major online subscription ventures, PressPlay and MusicNet, have licensing practices that run afoul of antitrust laws.
The settlement announced Monday stems from a case filed by state prosecutors in August 2000. The attorneys general argued that the labels' "minimum advertised pricing" (MAP) policy amounted to price-fixing. Under that plan, the labels would jointly pay for advertising if a retailer agreed to sell CDs above a certain price. The record companies have argued that the MAP policy helped smaller retailers beef up their advertising campaigns.
The labels agreed to drop the pricing agreements under a settlement with the Federal Trade Commission two years ago, but were not required to pay any money at that time and did not admit any wrongdoing then either.