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Feds Probe Record Companies Over Online Music Prices

The Department of Justice has opened an antitrust probe into possible collusion by the major music companies in setting prices for downloads on popular digital services such as Apple's iTunes.

Sources said all four major music companies — Sony BMG, Warner Music, EMI and Universal Music — have, or will soon, receive subpoenas by the DOJ in the probe.

The subpoenas signal widening interest among government authorities in the issue of whether the major music companies colluded in setting the wholesale prices for digital-music downloads. The DOJ probe follows on the heels of a similar investigation by New York Attorney General Eliot Spitzer.

In December, Spitzer subpoenaed the major record companies following a very public spat between the music industry and Apple chief Steve Jobs over pricing on the iTunes service, which charges 99 cents per track.

Spitzer's probe was later widened, as he formally asked for information from several online music services.

It's unclear which services received information requests, but Jonathan Potter, the executive director of the Digital Media Association, confirmed that several of its members had been contacted by Spitzer's office.

Among the members of the association are Yahoo!, Apple, Real Networks and Napster.

Some in the music industry have speculated that Spitzer's probe — which followed his high-profile investigation into the music companies' practice of paying for radio airplay — was related to negotiations between the record labels and Apple over extending licensing deals.

The music companies are all believed to be in various stages of renegotiation with Apple, and record executives are pushing for variable pricing, arguing that tracks of more popular songs should cost more than 99 cents, with less-popular tunes costing less.

Jobs, meanwhile, has resisted, and the spat burst into public view last fall.

"So if they want to raise prices, it just means they are getting a little greedy," Jobs said at the time.

The music industry bristled at the comment, and Warner Music boss Edgar Bronfman said at an investor conference in September that "not all songs are created equal ... There are some songs for which consumers would be willing to pay more, and some we'd be willing to sell for less."

Spitzer's earlier investigation of so-called "payola" — illicit payments to radio stations for airplay — resulted in Sony BMG paying $10 million last year to settle charges. Warner Music later settled for $5 million.

The two other majors, EMI and Universal Music, have not yet settled.

In 2003, the record industry settled another probe in which New York authorities accused record labels and retailers of collusion in setting minimum prices for CDs.

This followed a Federal Trade Commission edict in 2000 that ended the practice in which record labels forced retailers to keep prices artificially high by threatening to withhold millions in promotional money.