When Internet Music Gets Tap on the Shoulder

Just days ago in this column I was celebrating the manner in which the Old Economy and the New Economy had found a common ground for online music.

Was it a bit premature? Perhaps.

Executives with the big five recording companies had barely raised the champagne flutes to their lips when notices from the U.S. Department of Justice got delivered. The possible charge? Antitrust violations.

Before the highly touted new online music subscription services, such as Pressplay and MusicNet, get too carried away with themselves, the DOJ wants some answers.

Has there been illegal collusion among major record labels in the creation of the new services? Are the record companies perhaps using existing licensing and copyright laws to gain an unfair advantage?Are they unlawfully monopolizing the online music industry?

Most importantly, the DOJ would like to know if competition in the industry is being stifled before it has a chance to begin.

No Need To Argue

These are all valid questions, and certainly must come as no surprise to the big five recording companies.

Together, Sony Music Entertainment and Vivendi Universal, founders of Pressplay, and AOL Time Warner, Bertelsmann and the EMI Group, founders of MusicNet, already control an estimated 80 percent of the U.S. music industry.

Still, some observers are left to wonder: if five companies control almost an entire industry already in traditional channels, how is it that their new participation in Internet commerce suddenly constitutes an unlawful manipulation of the market?

That is precisely what the record companies want to know, although each has issued statements proclaiming full cooperation with the investigation.

Looking for a Friend

The Sherman Antitrust Act dates to 1890, and was passed in an effort to avoid inordinately high concentrations of wealth being placed in the hands of a few individuals or companies.

The purpose was simply to allow the marketplace to thrive, and to eliminate the possibility of undesirable price controls. Such price controls, it was reasoned, would discourage fledgling or less powerful entities from entering the marketplace, thereby flattening competition.

The problem is, a close examination of the Sherman Act shows that although well-intended, it leaves a lot of room for interpretation on a case-by-case basis.

It also leaves an opening for protracted legal battles that usually end in some sort of a draw. Think Microsoft.

Napster Bash

Just as the recording companies were issuing their requisite press releases, claiming that they are acting within the legal limits of the Sherman Act, the gang at Napster was breaking out the bubbly.

The embattled online music file-sharing service praised the Justice Department for being vigilant even when it came to the most powerful companies in the music industry.

Napster’s nemesis has always been major recording companies. As it endeavors to create a subscription service similar to MusicNet and Pressplay, Napster may have gained some time as a result of the DOJ’s investigation into the Big Five.

On the Road Again

U.S. antitrust laws were created in a different time and place, long before cyberspace. The question presented today is whether those laws can be reasonably applied to the Internet.

Skeptics fall on both sides of this issue. Some say the laws are antiquated. Others say the laws have stood the test of time, and will continue to do so.

However, U.S. laws are designed to foster competition, whether it is on the neighborhood street corner or in cyberspace.

The DOJ is simply doing its job, being vigilant, and ensuring that a company such as Napster that was born in the mind of one college student can effectively enter the marketplace in the face of potentially crushing competition from existing conglomerates.

For my money, the law rocks.

What do you think? Let’s talk about it.