Duet and MusicNet Face European Probe

The European Commission (EC) is investigating potential anti-competitive aspects of two major new online music ventures, Duet and MusicNet, an EC official said Monday.

Speaking at the third European Union (EU) Competition Day, EC competition minister Mario Monti said that the EC is investigating Duet, backed by Vivendi Universal (NYSE: V) and Sony Music Group (NYSE: SNE), and MusicNet, RealNetworks’ music subscription partnership with Bertelsmann AG, AOL Time Warner (NYSE: AOL) and EMI Recorded Music.

“These are important cases for the development of music services offered online to consumers, and there are potentially a number of issues which merit close examination,” Monti said.” It’s impossible for me to go into more detail, but the consumer interest is clear. Yes, online music services should develop rapidly, but with a diversity of service providers.”

According to published reports, the EC is in the early stages of its investigations into the two new services, which are separately backed by the top five music record labels in the world.

U.S. Probe Next?

Whether the U.S. Federal Trade Commission (FTC) will follow suit with its own investigation remains to be seen. FTC spokesperson Claudia Bourne Farrell told the E-Commerce Times that the agency “won’t be confirming that we have an investigation underway.” She added that it is the FTC’s policy to neither confirm nor deny open investigations.

Vivendi Universal spokesperson Anita Larsen told the E-Commerce Times that her company had received the EC’s request for information and is cooperating fully. However, she added that Vivendi Universal has “received nothing from the FTC.”

However, Steve Vonder Haar, Yankee Group research director for media and entertainment strategies, said that now that the EC had “gotten the ball rolling,” he would not be surprised if the FTC were take a look at the new online music services as well.

Issues to Chew

“What it boils right down to is that [the new online music services have] many of the elements that regulators like to roll up their sleeves and get to work on,” Vonder Haar said. “The lawyers on the government’s side do have some issues to chew on.”

However, Vonder Haar added, the labels’ lawyers could also make a case that Duet and MusicNet are not anti-competitive. He pointed out that the government would have a stronger case if all five labels were collaborating on one new service.

Additionally, because the labels are also working with independent music sites to license content, there are “a whole range of potential competitors,” Vonder Haar said.

Vivendi Universal has been a major force of consolidation in the online music industry in recent months. In May, the company announced that it was spending US$372 million to purchase MP3.com. In April, Vivendi shelled out $32 million to acquire EMusic.com, as well as an undisclosed sum to buy out BMG’s share of the companies’ joint venture, GetMusic.com.

Alleged Price Fixing

In addition to the new investigations, the EC is finishing up an existing probe into allegations that the five major record labels were involved in price fixing. As part of that probe, the EC reportedly sent letters to the record labels, 13 traditional retailers and five e-tailers.

Monti said that even though a similar investigation conducted by the FTC found “widespread price maintenance activities in the relationship between the major music companies and retailers,” the EC’s investigation found that such activity was “far less common.”

However, Monti added that “there were, unfortunately, one or two practices being carried out that were a cause for concern where, for example, some record companies only made advertising money available to retailers if the retailers agreed to sell above a certain minimum retail price.”

Monti added that as soon as the EC began its investigation, the price-fixing behavior was abandoned.