Music Companies Abandon Effort to Set Minimum Pricing of CDs

The nation’s five largest record conglomerates Wednesday agreed to stop their five-year effort to control the price of compact discs. The industry policies, developed at the urging of major music retailers, have been under fire from federal antitrust regulators.

After a two-year investigation, the Federal Trade Commission decided against prosecuting or fining the record companies. Instead, the FTC and the music arms of Time Warner Inc., Seagram Co., Sony Corp., EMI Group and Bertelsmann have agreed to a seven-year ban on a policy to punish mass retailers for discounting CDs below wholesale prices. The record companies admitted no wrongdoing.

It’s a mild slap on the wrist that is unlikely to translate into consumer savings, said industry sources. The FTC, however, is boasting a huge consumer windfall. Robert Pitofsky, FTC chairman, said at a news conference that CD prices could fall as much as $2 to $5 per disc.

Mass retailers such as Wal-Mart may now be more likely to sell CDs on the cheap. However, music industry insiders said most music retail chains and mass merchants already regularly discount new releases. Record labels ship CDs with a suggested retail price of about $18, but the recordings frequently are sold for $12.

The recording industry policy was to withhold thousands of dollars per month in advertising support to retailers found to violate their pricing guidelines. Music producers pay most of the costs for retail music stores to advertise particular albums.

The policy never stopped retailers from discounting CDs. It just restricted them from touting the lower prices in ads financed by record companies.

Record companies initiated the “minimum advertising price” policy in 1995 following a barrage of complaints from record retail chains, which accused Best Buy and other discount merchandisers of selling CDs below cost to drive traffic into their stores. Bowing to pressure from the giant music chains, the record labels began requiring all retailers, including mass merchants, to advertise prices around $12--about $1 higher than the wholesale price they charged retailers.

Time Warner, whose mergers with America Online Inc. and EMI Group are under federal antitrust review, already agreed to drop their anti-discounting policy. Sources said Seagram’s Universal Music, Sony, Bertelsmann and EMI have agreed to follow suit, possibly this week.

The FTC pricing settlement comes amid music industry consolidation. Time Warner and EMI Group said in January that they are merging their music units to create the world’s biggest record company. Universal became the No. 1 music seller after its acquisition of PolyGram.