Spitzer subpoenas music companies on downloads

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Eliot Spitzer, the New York State attorney general, has issued subpoenas to the world’s leading music companies in an effort to discover whether the industry has broken any laws regarding the wholesale pricing of digital music downloads.

The subpoenas were issued to all four major music companies last week, people involved said, but the probe is still at a preliminary stage. “It is too early to call it an investigation,” a spokesman for Mr Spitzer said. “It is a preliminary enquiry for information.” He added that any decisions related to the probe were still “many months away”.

Warner Music said in a regulatory filing on December 23 that it had received a subpoena on December 20.

Sony BMG on Monday confirmed it had received one and said it was co-operating fully. EMI and Universal Music were not available for comment.

The probe comes amid rising tension over digital pricing between the major music companies and Apple, which dominates the legal download market through its iTunes service.

Apple developed a flat-price model in which all songs downloaded via iTunes cost 99 cents in the US or 79 pence in the UK.

Its iTunes service is estimated to account for more than three-quarters of the legal digital download market, which is still dwarfed by the volume of illegally downloaded songs.

A number of music companiesn – namely Warner Music, Sony BMG and EMI – want Apple to change this to a variable pricing model when contracts with Apple are renewed in the coming months, with more charged for hit songs, for example, and less charged for older or less well-known music.

Others, including Universal Music, and Apple, have said the market is not developed enough for such pricing and that a switch might encourage users to seek music via illegal sites.

The dispute prompted Steve Jobs, chief executive of Apple, to call the music companies “greedy” in comments to reporters in September.

In August, Mr Jobs launched iTunes in the Japanese market without music from Sony BMG due to friction over the pricing contract.

Although Apple charges one price for its retail customers, music industry sources said the wholesale price paid to companies differed, ranging from around 60 cents to around 80 cents.

“It is hard to see how there could be collusion in this area, although perhaps Mr Spitzer is looking at the calls from a number of companies to change the pricing model going forward,” said one industry executive.

Mr Spitzer has recently reached settlements with a number of music companies regarding an investigation into improper “payola” payments made to get songs played on the radio.

Warner Music has paid $5m to settle the investigation, with Sony BMG paying $10m to settle its case.

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