DOJ INVESTIGATES MUSICNET, PRESSPLAY
The U.S. Justice Department opened an antitrust investigation, focusing on MusicNet (the RealNetworks/AOLTW/EMI/BMG joint venture) and Pressplay (the Microsoft/Sony/Vivendi Universal joint venture). The probe, which is in a preliminary stage, is looking into possible anti-competitive problems posed by the joint ventures, lawyers close to the case said Friday (8/3), according to The Wall Street Journal.
Of course, the word "probe" rarely indicates something unpleasant and unexpected, right?
One record company executive quoted by SiliconValley.com said, "For the past five years, this industry has been endlessly investigated by the government. They find nothing. And it costs us a fortune." The executive, speaking on condition of anonymity, added, "It's a handy whipping boy."
The fact that online leaders/rivals AOLTW and Microsoft are involved in this digital music play probably didn’t help keep these joint ventures under Federal radar either.
The investigation is still in its preliminary stages and no charges have been filed. So far, the Big Five have issued no comment concerning the probe, and neither has the Justice Department, which does not comment on ongoing investigations—so stop askin’!
According to the Journal, a lawyer familiar with the Justice Department investigation said that it isn't unusual for joint ventures among competitors to attract antitrust scrutiny and that many such ventures have been permitted to continue operating.
While this move by the DOJ seems like a bit of a shock, the writing was on the wall, but it might have been in French or German. European regulators launched an investigation of MusicNet and Pressplay back in June. At that time, independent music producers complained that the joint ventures had the potential to lock them out of lucrative online distribution deals.
A similar situation here in the U.S. may have triggered the DOJ’s investigation. According to SiliconValley.com, the Justice Department reportedly received complaints from small online music services, which claim to have been refused licenses by MusicNet, according to one source close to the venture.
This case also points out the core problem facing the Big Five as they slouch toward digital distribution. Although consumers want to be able to get their music from one convenient location—remember Napster?—if they Big Five join together to provide that service, it smells suspiciously like "collusion"—and we’re not talking about the Elizabeth Taylor fragrance either. On the other side of that coin, if the Big Five work independently, complainers (including Congress) complain that they're trying to stifle digital delivery and preserve their "product-based" business model.
As C. Montgomery Burns once said, "Oh, Ziggy, will you ever win?"
And speaking of Congress, as an interesting sidebar to this news, Rep. Rich Boucher (D-VA) and Rep. Chris Cannon (R-UT) dropped some legislation on their way out the door to their August recess—where Congressional four-square and dodge ball are encouraged.
The Music Online Competition Act, which would force record companies to offer the same price tag and other terms when cutting licensing deals with online ventures, has been called "Napster-friendly legislation"—remember Napster?
Boucher and Cannon have expressed concern that the Big Five will control the flow of songs on the Internet by giving special treatment to certain online services, that is, services backed by the Big Five.
"There are troubling signs that the recording industry, as a group, may have chosen not to license music content for tactical reasons in an attempt to stifle competition," Cannon said. "This bill has something for everyone. And it also has provisions that will give various members of the music industry heartburn."
MOCA, as the bill is being called, would release subscription online services from dealing directly with publishers and songwriters when clearing publishing rights, giving the U.S. Copyright Office that job, thus producing less royalties for publishers and songwriters. The bill would also exempt online services from paying licensing fees for song sampling and would expand the number of copies one server can store.
Digital Media Association head Jonathan Potter helped craft the legislation, which he said would spur "competition rather than lawsuits."
Predictably, Napster VP—remember Napster?—and lobbyist Manus Cooney expressed his support of the bill. "We hope that MOCA will be the shot of coffee this nascent industry needs," Cooney said, chuckling with self-satisfaction at his punmanship. "I like this bill a ‘latte.’ I hope this bill is on the ‘espresso’ track through Congress. Oh man, I’m on fire today! Wheee!"
Not surprisingly, the RIAA and music publishers have already criticized the bill, which will likely get a hearing in September.
There is some doubt, however, that the bill will pass Congressional scrutiny, since many lawmakers have been leery about any online-related legislation.
