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U.S. Sees No Collusion by Record Firms

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Times Staff Writer

The Justice Department ended a 2 1/2-year antitrust probe of the major record companies’ joint online ventures Tuesday, stamping official approval on the flourishing market for Internet music.

Federal officials said the growing number of legitimate online music sources for consumers proved that Sony Corp.’s Sony Music, Vivendi Universal’s Universal Music Group, Time Warner Inc.’s Warner Music, Bertelsmann’s BMG and EMI Group didn’t suppress competition in 2001 when they formed MusicNet and Pressplay.

The inquiry “has uncovered no evidence that the major record labels’ joint ventures have harmed competition or consumers of digital music,” said R. Hewitt Pate, assistant attorney general in charge of the antitrust division. “Consumers now have available to them an increasing variety of authorized outlets from which they can purchase digital music and ... are using those services in growing numbers.”

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Indeed, the labels have licensed music to a host of new retailers, including Apple Computer Inc.’s iTunes Music Store, BuyMusic Inc. and Roxio Inc.’s Napster 2.0.

Many more offerings are expected next year from the likes of Amazon.com Inc. and Microsoft Corp., Pate noted.

Some asserted that the labels tried to stifle the very notion of selling music online by putting an undue number of restrictions on MusicNet and Pressplay. But gradually, both services added features preferred by users.

What’s more, Sony and Universal Music Group eventually sold Pressplay to software maker Roxio, removing it from any possible conspiracy to control licensing terms. And investigators found that those label owners, along with EMI, Warner Music and BMG, all offered different licensing terms to music resellers.

Amy Weiss, a spokeswoman for the Recording Industry Assn. of America, declined to comment on the Justice Department decision. But she agreed that “legitimate online services are flourishing, and the industry and consumers are excited about all of the options out there.”

Sony said the company was pleased the investigation had ended. BMG and Universal declined to comment, and the other big music distributors didn’t immediately respond to inquiries.

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Although Tuesday’s decision didn’t surprise lawyers or analysts, it underscored how much the musical landscape has matured since the heyday of the original Napster a few years ago.

Napster and successor file-swapping services such as Kazaa offered free and unlimited pirated songs to tens of millions of music fans. When the record companies complained, they were pressed by Sen. Orrin Hatch (R-Utah) and others in Congress to come up with alternative services that were legal -- or else face antitrust questions. Lawmakers even threatened to force the companies to license their songs to digital outlets.

The resulting joint ventures -- MusicNet and Pressplay -- emerged after a long delay. But they failed to catch on with consumers.

The standoff between the wildly popular services that foster piracy and the anemic, though legal, versions lasted until April. That’s when Apple introduced iTunes. The service proved so popular -- customers have downloaded more than 25 million songs thus far -- that it set off a mad scramble by others to offer digital music, and the labels have cooperated.

Given those recent developments, the Justice Department had no reasonable alternative to dropping the case, Chicago antitrust attorney Alan Silberman said. Even if foot-dragging by the record firms delayed the introduction of legitimate online music services, that probably wouldn’t have been enough to prove substantial harm, he said.

Others said the music industry shouldn’t get much credit for opening its vaults.

The Justice Department, a concerned Congress and determined entrepreneurs from outside the music establishment all helped pry off the door, said Michael Bracy, co-founder of the nonprofit Future of Music Coalition, which helps artists benefit from new business models.

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“You really have to ask the question, ‘What would have happened had Congress and Justice not had such firm oversight on this issue?’ ” Bracy said.

Times staff writer Jeff Leeds contributed to this report.

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