Major labels, chains, pay $143 million in lawsuit
Think CDs are too expensive? Think you overspent on them between 1995 and 2000? Then you may be due for a refund. On Monday, according to USA Today, the five major labels and three record-store chains settled a nationwide class-action suit over alleged price-fixing for $143 million, which will ultimately go to consumers in all 50 states in the form of cash and free CDs.
At issue was a policy called ”minimum-advertised pricing,” in which labels offered promotional funds to retailers who agreed to sell CDs at a price no lower than an advertised minimum. The labels — Universal, BMG, Sony, Warner, and EMI — argued that the policy was necessary to keep record stores competitive with big chains like Wal-Mart, Best Buy, and Circuit City that did not specialize in music but sold underpriced CDs as loss leaders to lure customers into their stores to buy other merchandise. The record chains — Tower, Musicland, and Trans World (owner of Coconuts and FYE) argued that they needed the promotional funds to subsidize rents, in places like shopping malls, that were higher than those of the discount superstores. However, the practice ended in 2000 after a Federal Trade Commission complaint.
In settling the case, the record labels and the stores did not admit any wrongdoing or illegality but said that a settlement would be less costly than a court battle. ”We believe our policies were pro-competitive and geared toward keeping more retailers, large and small, in business,” said a statement from Universal Music that was echoed by similar statements from the other labels. ”It’s always been absurd to us to even be involved in this case,” Trans World chief financial officer John Sullivan told Reuters. ”Given the cost of lengthy litigation, it made more sense for us to settle the case.”
According to the Hollywood Reporter, the $143 million will be distributed in the form of $67.4 million in cash and 6 million CDs valued at $75.7 million, with the labels paying in proportion to their share of the market. ”This is a landmark settlement to address years of illegal price-fixing,” New York Attorney General Eliot Spitzer, who spearheaded the lawsuit, said in a statement. ”Our agreement will provide consumers with substantial refunds and result in the distribution of a wide variety of recordings for use in our schools and communities.”