The Federal Trade Commission is investigating whether the major record companies violate antitrust laws in setting the suggested retail prices of CDs, the Wall Street Journal reported on Thursday (Dec. 16).

The paper said two of the five major companies, Sony and Time Warner, are negotiating a settlement in which they would drop the alleged pricing practices as part of the FTC's review of the companies' planned merger of online retailer CDNow with mail-order clearinghouse Columbia House, which the two co-own.

Spokespersons for Sony and Time Warner declined to comment. While setting a suggested price is not illegal, if the companies work together to set uniform prices and practices, they would be in collusion and that would be an antitrust violation, the paper said.

One specific possible antitrust violation the FTC is looking into is the record companies' practice of withholding incentive payments for cooperative advertising from retailers who set their CD prices below the suggested price, according to the report.

The paper speculated that if Sony and Warner were to stop allegedly encouraging retailers to keep prices near or at their levels, more stores would offer CDs at discount prices.

A day earlier, the paper quoted Justice Department spokesperson Jennifer

Rose as saying that MTV Networks was being investigated for "potentially

anti-competitive practices involving music-video networks."

That inquiry was prompted by Viacom Inc.'s May purchase of rival music-video station The Box, according to an MTV Networks spokesperson, who requested anonymity.

The story relied on a number of unnamed music-industry sources in reporting that investigators are exploring the music video and entertainment company's alleged practices of demanding exclusive rights to music videos for MTV and its sister stations, M2 and VH1. The probe also reportedly examines parent company Viacom Inc.'s alleged efforts to get favorable licensing terms to offer videos in digital format for the network's websites. (SonicNet is a division of MTV Interactive.)

In the fall, several new releases, including Method Man and Redman's Black Out!, were shipped by the major labels to stores at a price of $18.98, a new high for CDs. A more customary retail price is $17.98, which is where Metallica's S&M, a Warner/Elektra album, and Nas' Nastradamus, a Sony/Columbia album, were set.

The average retail price of a CD — old and new — last year was $13.48, up from $13.16 the year before, according to Kathy Styponius, a senior entertainment analyst for Prudential Securities.

Joe Kvidera, the general manager of a Tower Records in Chicago, said in November that he regularly sells new CDs at $12.99 to keep his customer base.

"Our customers think we're crazy," Kvidera said. "We have to make money, too. We have to pay the rent and the electricity."

Sony, Time Warner and CDNow announced the proposed merger with Columbia House in the summer. Paul Vidich, Time Warner's executive vice president for strategic development and business planning, said then that Columbia House would help direct customers to CDNow and that the site could serve as a future outlet for digital downloads of music.