Spitzer Announces Price-fixing Lawsuit Against Major Record Companies And Retailers

State Attorney General Spitzer today announced a federal lawsuit against the country's five major record companies, as well as certain retailers, charging that they conspired to fix the price of CDs nationwide. It's been estimated that the price-fixing may have cost consumers as much as hundreds of millions of dollars.

New York, along with Florida, are the leaders in a coalition of 30 states and commonwealths charging a series of conspiracies that, starting in 1995, increased the price of CDs in violation of state and federal antitrust laws.

"This illegal action by record companies and retailers has not been music to the ears of the public," said Spitzer. "Because of these conspiracies, tens of millions of consumers paid inflated prices to buy CDs of artists including Santana, Whitney Houston, Madonna and Eric Clapton."

The suit will seek damages from record company defendants Capitol Records, Sony Music, BMG Music, Universal Music, and Warner Music. The Federal Trade Commission, which had a parallel, but separate investigation, has estimated that damages to consumers total $480 million. The states are currently calculating the damages they will ask for.

The retailers named are Musicland -- which operates stores under the Sam Goody and Musicland trade names, Transworld -- whose trade names include Camelot, Music & Movies, Planet Music, and Record Town, and Tower Records.

Last year, wholesale sales of CDs totaled over $14 billion nationwide.

The lawsuit charges that in the early 1990's, discounters like Circuit City, Target, Wal-Mart, K-Mart and Best Buy were undercutting the CD prices of the traditional retailers. Because of the increased competition, the average price of a CD quickly dropped from $15 to $10.

As a result of this new threat to their market share, the traditional retailers pressured the record companies to enter into agreements which put a floor price under retail CD prices nationwide. The record companies would then levy heavy financial penalties on any retail chain or store that sold CDs to consumers below the floor price.

"Our nation's business economy has been built on the notion of fair and free competition," said Spitzer. "When there is illegal activity to fix prices -- as was the case here -- the consumer is always the loser."

Spitzer said that any damages that New York receives could be used to fund music programs in schools and other similar efforts.

The lawsuit was filed in Federal court in Manhattan. In addition to New York and Florida, the other states and commonwealths joining the suit are Arizona, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Mississippi, Missouri, Nevada, New Mexico, North Carolina, Northern Mariana Islands, Pennsylvania, Puerto Rico, Rhode Island, Texas, Utah, Washington, West Virginia, and Wisconsin.

The case is being handled by Assistant Attorneys General Richard Schwartz, Linda Gargiulo and Emily Granrud of Spitzer's Antitrust Bureau, under the direction of Harry First.

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