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Suit Filed Against Record Companies Over Downloads

In a case that could affect millions who buy music online, the major labels are being accused of jacking up prices for songs sold on iTunes, Wal-Mart and other Internet retailers.

Two consumers have filed a federal class-action lawsuit in Manhattan claiming Universal Music Group, Sony BMG, Warner Music Group and EMI monopolize the $1 billion digital-music business and collude to fix royalties that result in higher prices for downloaded songs and subscription Internet music services.

The suit, filed March 9, seeks unspecified millions of dollars in damages and comes on the heels of two investigations into possible price-fixing in the music-download industry — one by New York Attorney General Eliot Spitzer, the other by the Justice Department.

The two plaintiffs, Cindy Seley of California and David Paschkett of Michigan, claim the four labels, which control 90 percent of the digital-music market, are forcing iTunes, MusicMatch, Napster and other music retailers to pay higher royalties for songs they sell. That extra charge is being passed on to consumers, according to the suit.

None of the labels would comment.

An industry analyst said the suit, if successful, could lead to slightly lower download prices.

The analyst, Phil Leigh of Inside Digital Media, described the "hypocrisy" of an industry that rails over piracy, file-sharing and other woes, but then stands accused of price-fixing.

Leigh said the music industry is particularly vulnerable now following a recent antitrust case involving price-fixing for CDs that the Federal Trade Commission said possibly cost consumers $500 million over three years.

Neither Spitzer's office nor the Justice Department would comment on their ongoing investigations.

Internet music retailers typically charge between 79 and 99 cents per downloaded song. Monthly subscription fees, which allow listeners access to multiple songs from an Internet music provider, can range from $6 to $15 per month.

At issue in the case is a controversial "most favored nation" contract clause negotiated by the labels, which serves to guarantee that any one label cannot receive lower royalty payments than any other. Critics suggest this is implicit collusion.

The suit claims the labels are being accused of violating antitrust laws in 21 states, as well as breaking a number of state consumer-protection laws.

Labels receive about 70 of the 99 cents consumers pay for a song.