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Music Distributors, Retailers to Settle Price-Fixing Case

Antitrust: Agreement with states includes refunds for consumers and CDs for libraries, schools and hospitals.

October 01, 2002|MEG JAMES | TIMES STAFF WRITER

The five largest music companies and several retailers have agreed to pay $143 million in cash and CDs to resolve long-standing allegations of price fixing.

The settlement, announced Monday, ends more than two years of legal wrangling between major record labels, three retailers and state attorneys general nationwide over the industry's "minimum advertised pricing" practice, which prosecutors alleged violated antitrust laws and illegally inflated the cost of CDs.

As part of the settlement, the retailers and record labels refused to admit wrongdoing, but agreed to pay $67.4 million to be refunded to consumers and send states $75 million worth of compact discs for use in libraries, public schools and hospitals.

California officials on Monday were figuring out how best to refund the state's share--$6 million--to consumers and distribute nearly $9 million worth of CDs to public schools and libraries. While the details are being worked out, distributing cash refunds might become too unwieldy, said Sandra Michioku, a spokeswoman for California Atty. Gen. Bill Lockyer.

"The idea is to get the refunds to as many people as possible for the amount they were overcharged," Michioku said. "But if there is a huge flood of claims, and California consumers would only get a very small amount, like $1, then we might have to do something that would provide a greater public benefit" such as sponsoring a free concert.

The settlement amounts were determined by market share. According to court records, Vivendi Universal's Universal Music Group, the largest music distributor, must pay the most--$40.6 million in cash and CDs. AOL Time Warner Inc.'s Warner Music Group agreed to pay $29.4 million in cash and CDs; Sony Music $27.2 million; Bertelsmann $27.8 million; and EMI Group's EMI Music $15 million.

The retailers--Musicland Stores Inc., Trans World Entertainment Corp. and Tower Records--must pay a combined $3 million, according to court records.

The pricing practice at the center of the dispute began nearly a decade ago, when big-box retailers including Best Buy and Circuit City began offering cheaper CDs to attract customers, siphoning business from smaller retailers including Musicland Stores' Sam Goody, Trans World Entertainment's Spec's Music and Tower Records. At the time, the retailers who felt they were being undercut asked the major record labels for help. The labels agreed to cover a portion of the retailers' advertising costs if the stores sold CDs at a "suggested" retail price.

But the agreements soon led to allegations of price fixing.

The music companies abandoned the practice two years ago to end a separate investigation by the Federal Trade Commission.

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The state action--lead by New York's and Florida's attorneys general--sought to win a refund for consumers who bought a music CD from 1995 to Dec. 22, 2000.

After struggling with how best to reach scores of consumers who might not have kept sales receipts, prosecutors took a different tack: They pressed the music companies to provide the bulk of the award in music CDs for public facilities.

"We think this is a way to benefit the entire class," New York Assistant Atty. Gen. Linda Gargiulo said.

The music companies and retailers have denied any wrongdoing.

Said Universal Music Group: "We believe our policies were pro-competitive and geared toward keeping more retailers, large and small, in business."

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