Online Music
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Description
Perhaps no industry has been more fundamentally challenged by the growth of the Internet and its related technologies than the recorded music industry. For most industries, the Internet mainly provides a new, albeit potentially far more efficient, channel of distribution. For the recording industry, however, the Internet has challenged the basic product the industry makes and the way it does business. The recording industry has mostly bundled prerecorded music into packages (“albums”); the Internet offers consumers the opportunity to unbundle music and choose only the songs they want to hear. The recording industry has maintained tight control over which artists get to distribute their work to the public; the Internet offers the opportunity for artists to deliver music directly to consumers. The recording industry has created the endproduct on which songs are sold (music on CDs, tape, and vinyl records); computer software and hardware allows consumers to capture recorded music on the media of their choice. The recording industry has owned the copyrights to the music they sell; computer software and Internet connections allow consumers to obtain music for free, in seeming disregard for= copyright protection and the economic interests of the copyright holders. The initial response of the recording industry to some of the challenges posed by the Internet was the creation of two joint ventures, pressplay and MusicNet, to distribute music online. Producer joint ventures to control Internet distribution are not unique to the recording industry (the airline, hotel, and motion picture industries have also started such ventures), but the recording industry joint ventures dealt with some particularly challenging issues of antitrust, copyright, and innovation policy. When the online music joint ventures were announced, they appeared to offer more competition and significant efficiency benefits, creating new entrants with a new product in a new market. Given the concentrated nature of the prerecorded music industry, however, and the ability of the record companies to control the licensing of their music to online music distributors, it was also clear that the joint ventures deserved closer antitrust scrutiny. Indeed, the Department of Justice and the European Commission opened investigations of the two ventures even before the ventures began their operations. Two and one-half years later the Department of Justice announced that it had closed its investigation because its “theoretical concerns ultimately were not supported by the evidence.” However appropriate this decision might be as a matter of enforcement policy, however, the Department’s explanation focused only on the ventures’ licensing practices and sheds little light on the appropriate analysis of the ventures’ formation. The thesis of this chapter is that the formation of these producer joint ventures was not justified by any efficiencies and that their formation was anticompetitive. More broadly, this chapter argues that the brief history of this industry demonstrates the danger to competition posed when the producers of essential inputs in a concentrated market join together to control downstream distribution, a danger exacerbated in this industry, involving, as it does, the distribution of intellectual property products. The chapter begins with a description of the business and legal environment in which the joint ventures were formed and then traces how both have developed since the ventures’ formation. The chapter then provides an analysis of whether the formation of the two joint ventures violated Section 1 of the Sherman Act. The chapter concludes with some observations regarding record industry joint ventures in today’s rapidly changing market for the distribution of online music.
Source Publication
Network Access, Regulation and Antitrust
Source Editors/Authors
Diana L. Moss
Publication Date
2005
Recommended Citation
First, Harry, "Online Music" (2005). Faculty Chapters. 616.
https://gretchen.law.nyu.edu/fac-chapt/616
