RIAA Digital Music Price-Fixing Case Reinstated

RIAA Digital Music Price-Fixing Case Reinstated

Judges note, among other things, that record labels didn’t dramatically lower their prices for online music as compared to physical CDs despite the fact that they “experienced dramatic cost reductions in producing” it.

It’s been an open secret that record labels have long colluded with one another to ensure maximum profits with limited competition and consumer choice. A group of plaintiffs has taken the RIAA to court over the matter, and after initially having to watch the case dismissed at the District Court level back in 2008, has now convinced a three-judge panel at the Second Circuit Court of Appeals to reinstate the case.

One of the major points of evidence of collusion is that the price of digital music is still too similar to physical CDs despite the obviously drastic reduction in price associated with distributing it, something file-sharers have argued all along.

The judges note:

Moreover, the pricing of CDs accounted for costs such as copying the compact discs; producing the CD case, labels and anti-shoplifting packaging; shipping, both to the distributor and then to record stores; labor, such as shelving CDs and staffing cash registers; and damaged and unsold inventory. All of these costs were eliminated with Internet Music. However, these dramatic cost reductions were not accompanied by dramatic price reductions for Internet Music, as would be expected in a competitive market.

In other words, an album that once fetched $15 on store shelves should now cost much less being that the label has much fewer costs to recoup.

Record labels also agreed to launch MusicNet and Pressplay music services, both of which charged unreasonably high prices and contained similar DRM.

Where it gets really interesting is the use of Most Favored Nation clauses (“MFNs”) by record labels with entities trying to independently sell digital music to consumers.

They continue:

Defendants also used Most Favored Nation clauses (“MFNs”) in their licenses that had the effect of guaranteeing that the licensor who signed the clause received terms no less favorable than the terms offered to other licensors. Defendants attempted to hide the MFNs because they knew they would attract antitrust scrutiny. For example, EMI and MusicNet had a “side letter”agreement which assured that EMI’s core terms would be no less favorable than Bertelsmann’s and WMG’s.

EMI CEO Rob Glaser decided to put MFN’s in a secret side letter over anti-trust concerns.

An additional concern is the fact that all the record labels refuse to do business with eMusic, the #2 Internet Music retailer behind only Apple’s iTunes. The panel notes that it only charges $0.25 cents per song, about one-third of the $0.75 cents per song wholesale price charged by record labels, and has no DRM or playback restrictions whatsoever.

The case is still far from over, and it’s still unlikely the court will side with consumers without clear evidence of collusion by record labels, but at least music fans will finally have their day in court.

Stay tuned.

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