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WASHINGTON, May 10, 2000 -- The Federal Trade Commission announced today that it has reached separate settlement agreements with Universal Music and Video Distribution, Sony Corp. of America, Time-Warner Inc., EMI Music Distribution and Bertelsmann Music Group (BMG).
The companies are the largest distributors of recorded music, selling about approximately 85 percent of all compact discs (CDs) purchased in the United States. The companies agreed to end their allegedly illegal advertising policies that affected prices for CDs.
Does this include you? If you bought CDs during the 1990s, you may be eligible for compensation. File a report.
The proposed agreements would settle FTC charges that all five companies illegally modified their existing cooperative advertising programs to induce retailers into charging consumers higher prices for CDs, allowing the distributors to raise their own prices. The complaints are the culmination of an extensive industry-wide investigation by the FTC of these practices.
The FTC's orders would require all the companies to discontinue their "Minimum Advertised Price" (MAP) programs in their entirety for seven years. The orders contain additional provisions to preclude the companies from maintaining the anticompetitive status quo.
"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. These settlements will eliminate these policies and should help restore much-needed competition to the retail music market, consisting of $15 billion in annual sales. Today's news should be sweet music to the ears of all CD purchasers," said Chairman Robert Pitofsky.
According to the FTC's complaints, the companies required retailers to advertise CDs at or above the MAP set by the distribution company in exchange for substantial cooperative advertising payments. The restrictions applied to all advertising, including television, radio, newspaper and signs and banners within the retailers' own stores. The restrictions even applied to advertising funded entirely by the retailer. Under the policies, large music retailers would lose millions of dollars a year if they failed to follow the MAP restrictions.
The complaints detail how MAP policies were adopted to squelch discount music retailing. In the early 1990s, many new music retailers, including major consumer electronics stores, started to sell CDs at low prices to gain customers and market share. The more traditional music retailers also lowered their prices to compete. This retail "price war" led to lower CD prices for U.S. consumers as prices for popular CDs fell as low as $9.99. The record companies adopted the MAP policies in 1995-96 to extinguish this "price war," the Commission contends.
The FTC alleges these MAP policies achieved their unlawful objective. The "price war" ended shortly after the policies were adopted and the retail price of CDs increased. The distributors then increased their own prices, and since 1997, wholesale prices for music have increased.
The proposed settlements would prohibit all five companies from linking any promotional funds to the advertised prices of their retailer customers for the next seven years. For the next 13 years after that, the companies would be prohibited from conditioning promotional money on the prices contained in advertisements they do not pay for. The agreements also would prohibit the companies from terminating relationships with any retailer based on that retailer's prices.
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