WARNER MUSIC SETTLES WITH FTC

In its annual 10K report filed with the SEC, Warner Music Group stated that they are officially dropping their MAP policies for at least seven years. The music industry has been anxiously waiting to find out which of the Big Five music groups would be the first to bow to FTC pressure and do away with the mostly popular price control, and WMG is the first domino to fall.

It now also seems inevitable that others will be following their lead. A source close to the matter tells us the music group was caught unaware that the deal struck with the FTC would be made public.

"We felt that MAP was a responsible business practice. But it got to the point where this was heading towards litigation with the government that seemed like it would be very long and expensive, with an outcome that was far from certain. With that looming over our heads, it seemed that we didn’t have much of a choice but to settle."

Retailers have yet to be notified, and even though the agreement between WMG and the FTC "staff" was struck back on January 19, there’s no confirmation that it has been approved by the FTC proper.

MAP policies were instituted in the mid-’90s by the Big Six distributors to combat what they felt were predatory pricing practices by retailers using music CDs as loss leaders to sell other products. The policy declared a minimum price retailers could list in advertisements and still receive co-op advertising dollars from the labels. But since all retailers rely on co-op dollars to increase their profit margins, the FTC viewed it as a strong-arm tactic for price-fixing by the labels. Yet many major retailers, who were in dire financial straits at the time hailed it as a savior.

How long will it be before the next major music group follows suit? Expect similar announcements sooner rather than later. During the years of MAP’s enforcement by the majors, the retail community as a whole has grown used to seeing a profit on music CDs. But it only takes one major chain to start a price war, forcing competitors to slash prices as well. And it now seems only a matter of time before the price wars of the ’90s will be back with us.

Well, at least it offsets the rising price of gasoline.