MUSICNET, PRESSPLAY TO
UNDERGO EXAMINATION

The Justice Department is said to be issuing Civil Investigative Demands, or CIDs, to the online music companies, the record labels that back them and the RIAA. At issue is whether the labels have illegally worked together to control distribution of music online.

News of the expanded probe, which has been bubbling under for months, illustrates how difficult developing a workable model for online distribution has become for the majors. On the one hand, the labels have been warned by Congress to make music available legitimately online or face compulsory licensing; on the other hand, the labels' efforts to develop legitimate services have prompted bow shots from antitrust regulators.

Both MusicNet and Pressplay were scheduled to launch this summer, but have been delayed due to licensing issues with publishers, among other loose ends. And just last week, when federal judge Marilyn Hall Patel deferred a request by RIAA lawyers for summary judgment against online music enfant terrible Napster, she served notice that the majors' online plans looked suspicious. "I'm really confused as to why the plaintifs came upon this way of getting together in a joint venture," Patel said. "Even if it passes antitrust analysis, it looks bad, sounds bad and smells bad."

Add to that analysis the fact that the European Commission, led by competition czar Mario Monti, has been urging the European Union to ban both MusicNet and Pressplay based on an argument that they would create an unfair online music duopoly, and the odors only intensify.

The EU's concerns were voiced most recently at a conference organized by the government of Belgium and held over the weekend. "There are several aspects [to Pressplay and MusicNet] that merit investigation to determine whether or not there are restrictions of competition," a spokesman for the EU told the London Times. "These two joint ventures appear to show a significant degree of vertical integration into retail online service provision, combined with a horizontal concentration from five to two major players. The investigations are ongoing."

Stay tuned for more sniffing and probing. We'll be integrating horizontally with our couch.