The Justice Department has begun an antitrust investigation spurred by two new online music ventures, Pressplay and MusicNet.
Lawyers close to the case told The Wall Street Journal that the probe is focusing on possible anticompetitive problems associated with the two services. The probe is in a preliminary stage.
Online music services also are drawing the attention of Congress.
The two sponsors of the Music Online Competition Act said Friday they introduced the legislation because they are concerned that the major recording congloms will control the flow of songs on the Internet by giving special treatment to certain online services, i.e., the ones they back.
Bill, brought to the floor as lawmakers headed for the August recess by Rep. Rich Boucher (D-Va.) and Rep. Chris Cannon (R-Utah), would force recording companies to offer the same pricetag and other terms when cutting licensing deals with online ventures (Daily Variety, Aug. 3).
In the next few months, two online subscription services supported by the majors are scheduled to bow. AOL Time Warner, Bertelsmann and EMI are behind the subscription service MusicNet, while Vivendi Universal and Sony are supporting a similar service called Pressplay.
“There are troubling signs that the recording industry — as a group — may have chosen not to license music content for tactical reasons in an attempt to stifle competition,” Cannon said. “This bill has something for everyone. And it also has provisions that will give various members of the music industry heartburn.”
But most sectors of the music biz — not just the Recording Industry Assn. of America, which represents the major labels — seemed unhappy with the bill. Already Friday, the industry had nicknamed the bill “most favored nation status.”
RIAA prexy-CEO Hilary Rosen said online music services must be allowed to develop in the marketplace, not in the halls of Congress. She said it is wrong to force recording companies to cut the same deal with everyone, rather than negotiating each one separately.
Even some smaller, independent music distribution companies questioned the premise of the Boucher-Cannon bill, dubbed “MOCA.”
FullAudio topper James Glicker said his venture has not been discriminated against by the majors. Distrib has signed licensing deals with EMI Recorded Music, EMI Music Publishing and BMG Music Publishing, and FullAudio is, in fact, the only company to have struck deals with publishers.
“We agree with the underlying philosophy that (the labels) should license to us on a nondiscriminatory basis, but we don’t feel we’ve been a victim of discriminatory licensing. We can’t say that we’ve been wronged, since we’ve been fairly successful getting licenses. So far, we seem to be making the same amount of progress as MusicNet.”
Napster veep and lobbyist Manus Cooney, who stood alongside Cannon and Boucher at a press conference plugging the legislation, said the bill is encouraging.
“We hope that MOCA will be the shot of coffee this nascent industry needs,” Cooney said.
Digital Media Assn. topper Jonathan Potter also was thanked by lawmakers for helping in crafting the legislation. He said the bill will spur “competition — rather than lawsuits.”
Music publishers and songwriters, however, said the bill deprives them of crucial royalties by loosening copyright law.
Legislation would release subscription online services from dealing directly with publishers and songwriters when clearing publishing rights. Instead, Internet companies would need to get general clearance from the U.S. Copyright Office, producing less in royalties for publishers and songwriters.
MOCA also would exempt online services from paying licensing fees for song sampling. Amazon.com or CDNow would be able to offer samples of 30 seconds or 60 seconds to promote sales.
In addition MOCA would expand the number of copies one server can store, as well as extend what is known as the “ephemeral recording” to protect not only the transmission but the individual song.
Boucher said he has been assured by those in charge that he will get a hearing on the bill in September. Chances of it passing out of Congress are far more dicey, since many lawmakers have been leery about online-related legislation.