LONDON -- Having toyed with three of the five music majors over the past year, the European Commission has launched an investigation into possible CD price-fixing that has the entire industry squirming.
On Jan. 26, Brussels took the record biz by surprise when it informed BMG, EMI, Sony, Universal, Warner and a number of retailers that it was launching an inquiry into the cost of music in Europe -- though there have been no complaints and there is as yet no evidence of impropriety.
The EC wants to determine whether the majors and retailers are colluding to inflate music prices.
Move appears to have been triggered by the aborted Warner-EMI merger and the possible marriage of BMG and EMI.
Industry insiders complain the indie record companies -- which helped topple Warner-EMI by voicing concerns over the combined company's potential to dominate the European market --continue to have the ear of the EC.
Yearlong probe
Investigation is a byproduct of the EC's yearlong probe into the ins and outs of the music industry. In their efforts to win approval from competition regulators, Warner and EMI provided Brussels with reams of inside company info, and now their peers are instructed to do the same.
The EC is nervous about giving the thumbs-up to any deal that will reduce the number of major label groups from five to four, and so is leaving no stone unturned.
"It is hard to understand what it is they are trying to get at," says Jay Berman, chairman and chief exec of IFPI, which reps the record industry worldwide. "It's a giant leap of faith."
In the past, such searches have proved fruitless.
The EC says it is modeling its investigation on one conducted last year by the Federal Trade Commission That probe centered on the now defunct minimum advertising pricing (MAP) policy, under which the majors provided retailers with funding for album promotions; in exchange, retailers kept prices above a minimum level. The FTC concluded that since 1997, music buyers in the U.S. overpaid by $480 million -- a figure hotly disputed by record companies.
No Euro MAP
But the MAP does not exist in Europe, and previous investigations in the U.K., Italy and Holland over the past decade have come to nothing.
The EC also is examining the extremely complex issue of why CD prices differ across Europe.
That requires a degree of expertise that some analysts believe is lacking in Brussels. Prices can be affected by a number of factors, such as the degree of A&R investment in a given territory, manufacturing and distribution costs and currency exchange rates.
The majors are hoping the EC will find no smoking gun and move on quickly, perhaps dropping the investigation within weeks. Other observers caution the process is merely in its first stage.
The industry doesn't want to spend even more money complying with yet another EC investigation. The Warner-EMI debacle cost EMI $63 million, and the meter on BMG-EMI is running.
(Andy Stern in Brussels and Justin Oppelaar in New York contributed to this story.)
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