Antitrust Settlement That Could Lower CD Prices Announced

Labels barred for seven years from tying promotional funds to retailers' advertised prices.

Lower CD prices may be on the way thanks to an antitrust settlement announced Wednesday (May 10) that will end minimum pricing programs tied to promotional funding from major record companies.

The deal between record companies and federal authorities settles the Federal Trade Commission's charges that CD prices have been illegally boosted by a practice in which major labels withhold advertising money from record stores that sell CDs below minimum prices, the FTC said in a press release.

"The FTC estimates that U.S. consumers may have paid as much as $480 million more than they should have for CDs and other music because of these policies over the last three years," FTC Chairman Robert Pitofsky said in a statement. "Today's news should be sweet music to the ears of all CD purchasers."

Universal Music Group (DMX, Shania Twain), Time Warner (Kid Rock, Madonna), Sony (Rage Against the Machine, Pearl Jam), BMG (Britney Spears, Backstreet Boys) and EMI (Smashing Pumpkins, Rolling Stones) all have agreed to the settlement, the FTC said.

The Minimum Advertised Price programs required stores to advertise CDs at or above a price set by a label, in return for promotional funding from the labels. The restrictions applied even to ads paid for entirely by the store, according to the FTC.

Under the settlement, labels are barred for seven years from tying promotional funds to retailers' advertised prices. For the 13 years after that, labels cannot tie promo money to ads the labels do not pay for. In addition, labels are prohibited from stopping business with a retailer based on that retailer's pricing.

The settlement is subject to public comment through June 9, when the FTC will decide whether to finalize its terms.

Without the incentive of advertising dollars keeping CDs around $16 for new releases, stores could be expected to cut prices. But because online music stores already sell albums at a discount, and thus pressure bricks-and-mortar stores to do the same, it's difficult to gauge whether the FTC agreement will yield significant cuts at the cash register, according to a story in Wednesday's Wall Street Journal.

If the move sparks price-slashing competition from large chain outlets, that could hurt smaller independent stores that don't sell enough CDs to lower retail costs.

Suggested list prices are climbing. In the fall, Method Man and Redman's Black Out! and Dr. Dre's Dr. Dre 2001 shipped to stores with a suggested $18.98 price tag, a new high.

At the same time, the industry is attempting to battle music piracy online, which may result in new business models — and prices. Software programs such as Napster, Gnutella and Scour Exchange have made it easier than ever for people to download full MP3 copies of albums illegally, for free.

Many Napster users cite what they see as an outrageous retail price for CDs as justification for downloading albums. Bands, labels and industry-watchers disagree on whether the downloading stimulates or discourages CD sales.

(This story was updated Wed., May 10, 2000 at 8:41 PM EDT.)