FTC forces CD price reform
May 10, 2000: 4:22 p.m. ET

Agency sets seven-year deals with music firms to change CD price policies
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NEW YORK (CNNfn) - The Federal Trade Commission announced Wednesday that it reached settlements with five major music companies to end pricing policies that the commission claims has led to higher CD prices.

The FTC estimates that the policies have forced U.S. consumers to pay as much as $480 million more than they should have for CDs and other music over the last two-and-a-half years.

The pact places a seven-year ban on permitting the recording companies to offer "minimum advertising price" (MAP) programs to retail record stores.

Under those programs, music producers pay some or all of the costs for retail music stores to advertise particular albums. In return, the record stores agree to advertise the albums for a set price and no lower. The FTC charged that the companies prohibited retailers from lowering prices even when the retailer paid for the advertising.

graphicUnder the agreement, Sony (SNE: Research, Estimates), BMG, EMI and Seagram's (VO: Research, Estimates) Universal Music, and Time Warner (TWX: Research, Estimates), the parent of, are prohibited from linking any promotional funds to the advertised prices of their retailer customers for the next seven years.

The record companies policies were "designed to get prices up," FTC Chairman Robert Pitofsky said at a press conference in Washington. "There was no plausible business justification for this other than to get prices up," he said.

The agreement also says that for the 13 years after the original seven-year period, the companies would be prohibited from conditioning promotional money on the prices contained in advertisements they do not pay for, and from terminating relationships with any retailer based on that retailer's prices.

A Time Warner spokesman stood behind the MAP principle, but said the company chose to settle rather than focus its resources on fighting over this issue.

"We believe MAP serves a valid business purpose for our customers and the consumer and is an appropriate and lawful practice," However, the FTC has made it clear that they disagreed with our view," New York-based Warner said in a statement on Wednesday.

"Rather than risk having the focus of our business personnel being distracted by this matter, we made a business decision to resolve it. Also, given the number of other issues we presently have pending that require regulatory approval, it was not worth it for us to have the matter continuing," the company said. Back to top


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