Music Settlement Sounds Off-Key

People have become skeptical of big-money corporate antitrust and price-fixing settlements, and with good reason: Although these settlements are invariably denominated in the hundreds of millions of dollars, in practical terms the biggest single chunk of the payouts goes into lawyers’ pockets, while the average consumer might get a voucher worth a few bucks.

This week, the shipment of 665,000 music CDs donated to libraries and schools by five major recording companies across California will give us a chance to see whether yet another industry charged with misdeeds has put one over on the public.

The donations are mandated by a 2003 settlement reached by EMI, Sony, Universal, Bertelsmann and Warner Music in a lawsuit brought by 43 states and U.S. territories and some private plaintiffs. The lawsuit accused the companies and three retailers of fixing CD prices through a program in which the music companies agreed to help pay for the retailers’ advertising if the stores sold their CDs at certain minimum prices. (The idea was to help music chains

battle retailers like Best Buy, which cut CD prices below wholesale to use them as loss leaders.)

A federal judge in Maine eventually approved a deal in which the defendants would pay $67.4 million in cash to consumers -- or $13.86 each for the few million consumers who actually filed claim forms -- and donate $75.7 million worth of free CDs to libraries and schools.

It’s fair to question whether the 5.6 million donated CDs are worth what the companies claim. Many libraries in states that have already received their shipments have found them to be a mixed bag. Although there are plenty of titles with popular appeal or cultural value -- from the Red Hot Chili Peppers to Mozart -- the 1,900 titles in the master list negotiated by the plaintiffs and defendants include hundreds with questionable, if not nonexistent, commercial value.

Measured by weight alone, the list is skewed toward the latter category, with a surfeit of 4- and 5-year-old pop CDs; Christmas albums from yuletides past; and oddities like Gregorian chants sung by a choir of Spanish monks and Martha Stewart’s “Spooky Scary Sounds of Halloween” -- a 40-minute track of moans and cackles designed to thrill trick-or-treaters.

Any given shipment seems likely to offer more such lumps of coal than nuggets of gold. Among the 40,000 CDs slated for the Los Angeles Public Library are 440 copies of a 2001 CD by country singer Mark Wills that has sold only 110,000 copies in the four years since its release, according to Nielsen SoundScan. (A genuine pop hit might sell four times as many units in a week.) In all of 2004, the album sold 1,100 copies nationwide; a reckoning posted online by the office of Atty. Gen. Bill Lockyer indicates that almost that many copies are being donated to libraries in Los Angeles and Orange County alone.

None of this is meant to suggest there’s no cultural or entertainment value in Gregorian chants, Halloween atmospherics or second-tier country music -- just that it’s hard to imagine that, left to themselves, librarians in the Los Angeles County system would have ordered the 184 copies of Gregorian chants and the 116 Martha Stewarts they are due to receive shortly, but only two copies of “The Best of Duke Ellington.”

It’s unsurprising, therefore, that the recording labels have been accused of using the donations to sweep their warehouses of junk. The plaintiffs’ negotiators contend that they did the best they could. They dickered with the labels for months to acquire a decent mix of genres and titles. But the judge told them to come up with a final list in mid-2003 for distribution in 2004 and 2005, which helps explain why it seems overpopulated with pop music carrying the shelf life of unpasteurized milk. (They also grouse that the press has focused its ridicule on only a couple of titles, namely the Gregorian chants and Martha’s witchcraft.)

Indeed, most librarians have been loath to criticize the deal outright, because in this era of skinflint public spending almost any handout is gravy. Stephen Newcomer, director of information technologies and collections at the L.A. Public Library, put the best face on things by observing that “L.A. has a wide variety of people with various tastes, and this list certainly provides variety.” But he allowed that, had the library been given a say, “we probably wouldn’t have selected 400 copies of some of these titles and only one or two of others.”

What gives this handout the smell of a recording industry scam, however, isn’t that there’s dross among the gold, but that there’s so much dross that the dollar value of the donation looks grossly inflated. The $75.7-million total is based on a calculation of $13.50 per CD, even though few of the titles would sell for even a fraction of that price today. In effect, the plaintiffs settled the price-fixing case by allowing the companies to fix the price of 5.6 million donated CDs at $13.50.

Consider what would have happened, instead, if the libraries received vouchers to buy whatever titles they wished from the five companies instead of getting a random selection dumped on their doorsteps. For $540,000 -- ostensibly the value of its allocation -- the L.A. Public Library might acquire tens of thousands of CDs it actually needs, rather than a pile the manufacturers are dying to be rid of.

Lockyer’s office notes that the libraries have the right to use the CDs almost any way they wish, including selling them. But they’re not all hot items; as I write, the Mark Wills album is for sale on EBay for $1.50, with no takers.

Other than that, one supposes, the best use of thousands of mediocre CDs is limited only by the imagination. Frisbees? Table coasters? Pizza cutters? Or reminders that when big companies settle high-stakes court cases, their math is often imaginary, too?

Golden State appears every Monday and Thursday. You

can reach Michael Hiltzik at golden.state@latimes.com and read his previous columns at latimes.com/hiltzik.