DOJ logs off its online music store inquiry

Gov't sees licenses as fair and competitive, not stifling

With the digital music market advancing so fast in the past year that its inquiry became largely irrelevant, the Justice Dept. has dropped an antitrust investigation of Pressplay and MusicNet, the online music services launched by the major record labels in 2001.

DOJ found that Pressplay, a joint venture of Sony and Universal, and MusicNet, owned by Warner, EMI and BMG, did not stifle competition, relying largely on the recent growth of iTunes and its expanding cadre of competitors as evidence.

“The development of the digital music marketplace … belies any concerns that the record labels used their joint ventures to stifle the development of the Internet music marketplace and to protect their present positions in the promotion and distribution of prerecorded music in physical form,” said R. Hewitt Pate, assistant attorney general in charge of the DOJ’s Antitrust Division.

The news shocked nobody, as MusicNet has become largely irrelevant in recent months and Pressplay literally nonexistent. Pressplay was acquired by Roxio earlier this year, which shut down the service and integrated its technology into the new, legal version of Napster that it launched in October.

MusicNet still exists but is now available only to America Online subscribers. With its multiple restrictions on how subscribers can transfer music, however, it’s likely to be supplanted by Apple’s iTunes, which enables restriction-free downloads for 99¢ and was recently integrated into AOL’s music section.

Third-party cooperation

The DOJ noted in its findings that the variation in licenses offered by the labels to iTunes, Napster and other competitors proved the labels were acting competitively. Some analysts, however, said that the government investigation might have spurred the labels to cooperate more with third-party digital music vendors.

“It probably did encourage their desire to enable these third parties,” said Rob Enderle, principal analyst at the Enderle group. “The labels surely also realized that if they were limited to their own stores, they’d have problems moving their music.”

With the rapid growth of the digital music space, however, in which market leader iTunes has already sold 25 million songs this year, the labels, which take about 70% of every sale, are finally starting to prosper online. It’s the music stores, which face stiff competition and a price point that will fall to 88¢ when Wal-Mart launches its offering in the spring, that are feeling the pinch.