Music Fans Will Pay for MAP Lawsuit Blitz against Big Five

After a May 10 announcement from the Federal Trade Commission that it had negotiated a settlement with the music industry's "Big Five" over a controversial pricing policy, enterprising private attorneys wasted little time initiating class-action lawsuits (1, 2) against them. By early August, some reports placed the number of suits nationwide at more than 100.

The minimum advertised pricing policy, or MAP, was used industry-wide in the mid-1990s, and put retailers at risk of losing co-op advertising funds from the Big Five if they promoted CDs below certain prices. The MAP scheme arose in response to mass-market electronics merchants who were selling CDs at or below wholesale cost to pull customers into their stores, causing a serious loss of revenue for specialty music retailers. Some of them went out of business as a result. MAP was "an appropriate and lawful practice," said Warner Music's Will Tanous. FTC investigators estimated that consumers overpaid by as much as $480 million for CDs during the time the policy was in force.

Attorneys general from approximately 30 states and US territories have now joined the attack on the music companies—who settled with the FTC without any admission of wrongdoing—by launching their own lawsuits. The five companies—Warner Music, Universal Music, Sony Music Entertainment, BMG Entertainment, and EMI Group PLC—control approximately 85% of the roughly $15 billion annual market in recorded music. Also named as defendants are three large-scale music chains: Sacramento, California–based MTS Inc., parent company of Tower Records; Minneapolis-based Musicland Stores Corp.; and Albany, New York–based Trans World Entertainment Corp., which operates the Camelot, Coconuts, and Strawberries stores.

Attorneys both public and private have interpreted MAP as price fixing. "These illegal actions certainly have not been music to the ears of the public," said New York Attorney General Eliot Spitzer to reporters on August 9 as he filed suit in US District Court in Manhattan.

Spokespeople for some of the defendants have stated that the suits are "without merit." BMG spokesman Keith Estabrook stated that minimum advertised pricing was "a legitimate and appropriate practice and we are confident that the courts will reach the same conclusion."

Attorney General Spitzer and his colleagues say their lawsuits are intended to force record companies to pay back the profits they made illegally. Statements that litigating attorneys have made to the press have been characterized by predictable displays of moralistic posturing and fake outrage. The lawsuits are ostensibly about correcting a wrong that was done to consumers, but few consumers will actually benefit. In fact, consumers ultimately will end up paying the music industry's legal bills, which will run into the hundreds of millions of dollars, win or lose.

How? Despite the industry's diversified investments and obviously deep pockets, it has only one simple business plan: selling recordings to music-lovers. Music-lovers provide most of the industry's profits, and therefore pay for any expenses it incurs. If the Big Five find themselves stuck with huge fines and punitive damages, as seems likely, those expenses will eventually be passed along to consumers in the form of—you guessed it—higher CD prices. There won't be an immediate increase as judgments are handed down, but prices will inexorably creep up as sales and marketing departments seek to recover what's been lost. That's the nature of business.

Only specific plaintiffs named in the various suits will see any money recovered from the defendants. Apart from a tiny minority of folks who can write off their music purchases as legitimate business expenses (audio equipment reviewers, music journalists, and people in the music industry), very few keep meticulous records about their music-buying habits. Average music-lovers aren't likely to see a dime from any litigation undertaken "to defend consumers," but private attorneys will rake in millions, and states will bolster their coffers—all of it provided by those who buy CDs for the sheer joy of music.