Supreme Court Lets Price Fixing Claims Against Major Labels Over Digital Music Move Forward

from the fix-that dept

Tue, Jan 11th 2011 7:11am — Mike Masnick

For many years, we wondered why the major record labels weren't brought up on price fixing charges concerning their various digital music deals. It involved all of the major labels working out deals where the price of music was exactly the same across the board and where it was the labels themselves who got to determine the end-user price rather than the retailer, which seemed like clear cases of price fixing. It used to be that manufacturers were not allowed to require a retailer to price in a certain way, as that would be prima facie evidence of price fixing but more recently rulings have dialed back that rule. Still, it seemed like some of the other aspects of digital music pricing still represented clear price fixing. It took long enough but finally some people sued. While a lower court had tossed out the lawsuit, last year we noted that the 2nd Circuit appeals court had reinstated it. The labels appealed to the Supreme Court, who has now allowed the case to move forward by rejecting an appeal from the labels. At this point, I wonder if the labels won't try to settle the lawsuit in an attempt to avoid a full trial. The chances that the labels might lose seems decently high and the costs to them could be quite high.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: collusion, price fixing, record labels, supreme court

39 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

xenomancer (profile), 11 Jan 2011 @ 6:31am

Hopefully this will move forward and be a comprehensive trial exposing this group's persistent practice of direct market manipulation. Lessening the influence of these labels can only help artists at this point.
[ link to this | view in thread ]
The eejit (profile), 11 Jan 2011 @ 7:07am

Re:
Direct market manipulation is bad. Just look at oil for a prime example of this.

However, the labels are necessary as an alternative to self-promotion. There is still a place for the Big Three, provided they can dial back their reckless greed and keep to the promotion arm.
[ link to this | view in thread ]
:Lobo Santo (profile), 11 Jan 2011 @ 7:25am

Sorry but
Apologies, as I normally do not go about link dropping, especially here, my most frequented of daily websites.

But, I just came across this and absolutely must share it, especially here.
www.whyweprotest.net
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 7:34am

Without absolute proof of collusion, it is very unlikely that the Surpreme Court will rule in favor of the plaintiffs. This same sort of thing has been tried in other industries, and almost always fails because there is no smoking gun. No meetings, no discussion, no memos, etc.

Much of the pricing of digital music has been as a result of Apple's choices on how to market things. They set the original 99 cent price, and everyone who wanted to play had to join them. That sort of price pretty much establishes the market.

Over time, the labels pushed for higher prices, and Apple allowed there to be multiple price points. The higher price points also make Apple more income.

I think this lawsuit is without merit, and the original court got it right. With a very conservative / pro buisness supreme court, it is very unlikely it will get past them.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 7:57am

Re:
If the lawsuit was without merit, don't you think that the very conservative/ pro business Supreme Court would have agreed to hear the appeal from the labels?
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 8:04am

Re: Re:
Nope. The surpreme court will not hear a case until it has reached it's conclusions on other levels, and until there is enough out there for them to work with. The Supreme Court isn't about discovery and trial, they are about settling issues on which the courts are often split.

The Supreme Court isn't likely to take the case until there is enough out there to work from, and the question is narrowed to something that can be argued in the short time permitted to each side.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 8:04am

Re: Re:
Nope. The surpreme court will not hear a case until it has reached it's conclusions on other levels, and until there is enough out there for them to work with. The Supreme Court isn't about discovery and trial, they are about settling issues on which the courts are often split.

The Supreme Court isn't likely to take the case until there is enough out there to work from, and the question is narrowed to something that can be argued in the short time permitted to each side.
[ link to this | view in thread ]
The eejit (profile), 11 Jan 2011 @ 8:28am

Re: Re: Re:
Ah,b ut the original deal to set up iTunes almost didn't go through, as Apple wanted to charge only $0.29/track and $4.99/album.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 8:37am

"Supreme Court Lets Price Fixing Claims Against Major Labels Over Digital Music Move Forward"

Really? Typically it's OK for big corporations and major labels to break laws, just so long as poor individuals don't do it.
[ link to this | view in thread ]
Karl (profile), 11 Jan 2011 @ 8:43am

Re:
This same sort of thing has been tried in other industries

Actually, this sort of thing has been tried before in this industry.

The record labels lost.
[ link to this | view in thread ]
Rekrul, 11 Jan 2011 @ 8:46am

Even if this goes to trial and the court actually finds the labels guilty, the award will be some slap on the wrist amount, and they'll continue doing the exact same thing. Just like when Microsoft was found to be a monopoly. Remember all the big changes that happened in that case...
[ link to this | view in thread ]
herbert, 11 Jan 2011 @ 8:48am

surely the prices Apple charge are what the labels said they were allowed to charge? same goes to shops as well. charge less, sell more, make more money, reduce file sharing. simple!
[ link to this | view in thread ]
Miles (profile), 11 Jan 2011 @ 9:08am

There's more.
Look at all forms of entertainment. They all price fix (and gouge). While it's nice to see one being sued, the rest need to be included as well.

Why do all hardback books always start out at $29.99?

Why do all non-HD games start out $49.99, and HD $59.99?

Why do all movies now cost $24.99 for DVD and $34.99 for BD?

It's ridiculously apparent except when more laws are being passed to protect these prices.

Nothing's going to change.

I'm betting, should the price fixing be found guilty, this industry will "lower" the price of songs to 49 cents but place a 50 cent "transaction" fee to process the download.

Never underestimate the potential humans have to screw other humans of their money.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 9:16am

I do have to say as well that the title of the post is somewhat misleading. "Supreme Court Lets Price Fixing Claims Against Major Labels Over Digital Music Move Forward" isn't really accurate, the Surpreme Court declined to hear the appeal for now. They didn't grant any permission or allow a case to move forward, they just declined to rule at this point.

The Court didn't do anything to encourage or allow things to move forward, they just declined to get involved at this point. it isn't like both sides presented their case before the court and they ruled on anything.
[ link to this | view in thread ]
bob, 11 Jan 2011 @ 9:27am

Give them their day in court
No settlement, it's the least we can do for them.
[ link to this | view in thread ]
Revelati, 11 Jan 2011 @ 9:33am

I see the RIAAs defense...

Well if you don't let the labels fix prices, then they would "gasp!" have to compete with each other. If you make us compete with each other then prices will go down. If prices go down then we are going to have to squeeze artists or our execs and lawyers would have to make less money.

So really you are just hurting the artists.

Its quite similar to their anti file sharing defense.

Well if you let people share the things that they "buy" (scratch that) "rent" then we will lose money. If we lose money then our execs and lawyers will make less money so we will have to raise prices. If prices go up then we will be squeezing the consumer.

So really you are just hurting the consumer.

The only ones immune to the hurt is the entertainment bureaucracy, and any attack on it is redirected right back to the artists and consumers. This is why I wouldn't mind seeing all the big labels go bankrupt. Would artists get paid less? Probably. Would consumers have to pay more? Also likely. Would buying media finally be about supporting the artists who make it instead of the middlemen? Absolutely.
[ link to this | view in thread ]
Marcus Carab (profile), 11 Jan 2011 @ 9:40am

Re:
Not exactly. The original lawsuit was thrown out, and then reinstated and allowed to move forward by the appeals court. Now the record labels went to the supreme court trying to get it thrown out again. They specifically requested that the supreme court block the suit and overturn the ruling of the appeals court, and the supreme court refused to do that - thus allowing the original lawsuit to move forward.

When you are talking about an appeal, declining to hear it is essentially the same as rejecting it, and still points to active participation on behalf of the supreme court (keep in mind that there is nowhere left for the labels to appeal this now, so the court tossed out their last chance at stopping the lawsuit)
[ link to this | view in thread ]
MrWilson, 11 Jan 2011 @ 9:43am

Re: Re:
"However...labels are necessary as an alternative to self-promotion. There is still a place for [labels]..."

There, I fixed that for you. It doesn't have to be the Big Three. Just because six year olds think dinosaurs are cool, it doesn't mean we need them to still be walking around.
[ link to this | view in thread ]
MrWilson, 11 Jan 2011 @ 9:46am

Re:
With so many of the laws having been written by representatives of the big corporations, it's difficult for the courts to tell which laws the corporations secretly exempted themselves from.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 9:47am

You might want to throw Bose and anyone else who locks their retail prices on that list as well.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 9:50am

Re: Re:
The Supreme Court declined to hear their case right now, without comment. It isn't rejecting their claims, depending on the outcome, they will likely be asked to hear the case after it actually runs through the lower courts again.

It is very different from a Supreme Court ruling. The Supreme Court rejects (without comment) many more cases than it hears each year. It doesn't say anything about the merits, it often says more about the timing.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 9:57am

Re: There's more.
You confuse market pricing with price fixing.

Price fixing requires agreement amongst all the parties, usually a meeting, a document, or an agreement made. There is no such thing. Rather, one set a price, and the others choose to either meet that price or go lower. Over time, the market settles in at a price where all parties are happy with what they are making.

Remember, much of this stuff is "non competing" goods. They compete mostly on their merits to the potential buyers. They are not all the same, they are in fact all different.

Airlines are a great example. All planes can get you from A to B, the prices vary depending on service, availability, etc. Quite often, one company will be a market price leader, and others will follow on those prices. On one side, they don't want to have empty seats, and on the other side, they don't want to leave money on the table.

Public pricing is very simple to work out, considering all the prices are out there.

The only thing that is "ridiculously apparent" is that all the players are watching each other very closely. Why do you think there was so much concern in the book selling market when certain places suddenly marked things way down? It is because each company as a result has to respond, like it or not. They are all watching.
[ link to this | view in thread ]
A Dan (profile), 11 Jan 2011 @ 10:13am

Re: There's more.
Not really that accurate on games.
Example: http://en.wikipedia.org/wiki/Deadly_Premonition

"It was further specified that the game would retail within the budget range, priced at $19.99 in the United States."
[ link to this | view in thread ]
Chronno S. Trigger (profile), 11 Jan 2011 @ 10:43am

Price Fixing
Douse it really count as price fixing if the only reason the prices are so low is because Apple refuses to raise them? The only reason the prices aren't $2-$4 per song is because Apple price fixed at $0.99.
[ link to this | view in thread ]
AR (profile), 11 Jan 2011 @ 11:00am

Re: Re: There's more.
"Airlines are a great example"

If I remember correctly the major airlines also got nailed for price fixing in the late 80's or early 90's. I cant remember the details (maybe someone can help) but prices fell and price wars broke out afterwards. One or two may have gone out of business or got bought up by others because of it.

Thats the way a free market is supposed to work. The consumer demand sets the price. Not the corporations marketing division. If they set the price too high consumers dont buy and the corporation goes out of business.

Personally, I wont miss the major labels. The "artists" will still be around making music. There will just be a different way of getting it out to the consumer to be purchased, and probably at a price that the consumer finds more reasonable, thus lowering "piracy".

Keep in mind "piracy/black market" is not the problem. "Piracy" is the result of the true problem.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 11:19am

Re: Re: There's more.
Actually, in a competitive market, price should be equal to marginal cost. If the volume is high enough, I would expect the marginal cost of a CD to be well under $1. If there is no physical product to exchange, like an electronic download, I'd expect it to be even less.
[ link to this | view in thread ]
Miles (profile), 11 Jan 2011 @ 11:36am

Re: Re: There's more.
"Over time, the market settles in at a price where all parties are happy with what they are making."
This is where the problem resides. I'm quite confident consumers aren't happy with paying the prices they do. Had this any merit, piracy wouldn't be as significant an issue.

In addition, it's rather ridiculous to assume products costing little to produce aren't fixed in cost to recoup immediate expenses until additional windows are opened to release lower priced items.

I'll concede I may be confusing the two, but it's not making a difference when, as the case clearly shows, people can't reasonably find competitive products for less price via many competing retailers.

I also find the movie studios' "deal" with Redbox and Netflix very questionable as well.

It may not be price fixing, but it sure as hell isn't fair business practice.
[ link to this | view in thread ]
AR (profile), 11 Jan 2011 @ 11:38am

Re: Re: Re: There's more.
"Actually, in a competitive market, price should be equal to marginal cost"

The only problem with your thinking here is that the consumer doesnt care about the costs to the corporations or what they might think the price should be. Thats including the overly inflated salaries of the corporations which are included in those "marginal costs" Consumers only care about the cost to themselves compared to the value received. If the corporation (company) cant find a way to satisfy the consumer then they lose that sale. Lose enough sales, then they go out of business. The corporations can argue "marginal costs" all they want but it falls on "deaf" (consumer) ears. and they can cry about it all the way to bankruptcy court. No one really cares. They will just be replaced by another company willing to work with the consumer. Thats true compitition.
[ link to this | view in thread ]
Marcus Carab (profile), 11 Jan 2011 @ 12:13pm

Re: Re: Re:
Maybe someone with more understanding of the details can weigh in here, but I don't think what you are saying is quite accurate. This wasn't a case of them simply refusing to hear the appeal - it was them actually examining the appeal and upholding the original ruling.

I believe that, in this case, the decision was based on the merits of the appeal - but again hopefully someone can step in to clarify
[ link to this | view in thread ]
PRMan, 11 Jan 2011 @ 1:02pm

Re: There's more.
My problem isn't with CDs. It's with jewel cases. CD-Rs have 4 billion burnable pits, but they cost less per item than the 3 pieces of simple injection-molded plastic that holds them, often by a factor of 10.

What's up with that?
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 1:15pm

Re: Price Fixing
Aren't retailers allowed to do that, though? Set prices for themselves? (I honestly don't know, apologies if I'm being dense or uninformed).

Apple can set their own prices, even set them lower than .99 if they see fit, but the threat would be the labels pulling their stuff...and I suppose the agreements they have regarding distribution rights are a further complication - those costs vs. price they can set to recoup them.

I've just lost myself, ha.
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 1:20pm

Re:
To paraphrase Mal Reynolds from the show Firefly, as he prepped his crew on what could become a dangerous mission:

"The world is fifty percent middlemen, and they don't take kindly to anyone interfering with their middlin'..."
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 1:23pm

Re: Re: Re: Re: There's more.
I think you missed the premise of "in a competitive market".

A competitive market presupposes consumer demand, and enough sellers (or maybe enough sellers without monopoly power) and low enough barriers to entry into the market to allow for competition.
[ link to this | view in thread ]
AR (profile), 11 Jan 2011 @ 2:35pm

Re: Re: Re: Re: Re: There's more.
"I think you missed the premise of "in a competitive market""

No, I didnt.

"A competitive market presupposes consumer demand, and enough sellers (or maybe enough sellers without monopoly power) and low enough barriers to entry into the market to allow for competition."

I believe you miss the point on what quantifies "consumer demand". Consumer demand is nothing that should be taken for granted and meeting that demand is not strictly about having ample quantity on hand for sale or distribution to match the numbers. It involves (but not limited to) quantity, quality, and afford-ability. With an emphasis on afford-ability. You could have the only company in existence with a product (physical or content) , with unlimited supply (ie digital content),that you perceive as the public not being able to do with out. If your price is too high some people may buy but most will not. If they feel they absolutely have to have it, but not at your price, they will find another way to get it. Including building another company to make a similar (or the exact same) product cheaper (ie knock-offs, "piracy" ,black market). These are not forces that work against a free (and competitive) market but are actually a part of that same market. Working against higher prices and driving innovation. It has been that way for thousands of years.

An example would be when a cave man first learned to crack open a walnut by smashing it between two rocks a second one said open these two and ill give you one. but when the first one got greedy and told the third one it would cost him tree walnuts to get one back, he said ill get my own damn rocks.
[ link to this | view in thread ]
Marcus Carab (profile), 11 Jan 2011 @ 3:49pm

Re:
They are more than willing to string up a corporation here and there, now and then - you know, for appearance's sake ;)
[ link to this | view in thread ]
Anonymous Coward, 11 Jan 2011 @ 3:51pm

Re: Re: Re: Re: Re: Re: There's more.
Two problems here: While the marginal cost of a CD is fairly low (production wise), that is often not the big end of the expenses. To look only at the marginal production costs without any of the other cost structures to make the product is wildly misleading.

Band has 4 members. They work for months writing songs, come together in a rehearsal space and work on the songs, perhaps with a producer on hand to help them out to smooth things out. They perhaps hire external song writers to help out, maybe a really good programmer for some sequncing stuff, whatever. Finally they go on and record it in a studio, with an engineer, a producer, and a few other staff members (like equipment roadies, whatever). At the end of that, the final product is mastered, artwork designed, final pre-production test copies made and checked, etc.

It's now a year since they started writing to get to the finish product. There are countless man hours put into the product, the studio time, the hired on people, etc. let's say they went through $250,000 to do it.

Then they produce 500,000 CD copies for sale, each with a marginal production cost (your number) of $1. The problem? The fixed up front costs have to get covered somewhere. So now, your $1 is already $1.50, and we still haven't covered any of the costs of getting the product to the retailers, stocking, maintaining, and finally selling the product, the distribution, their credit card discounts, they invoicing and collection from the record label to the distributor and all on down the line.

See? Your $1 "marginal cost" is just part of what it costs. When you stop thinking about marginal costs as the only costs, things make way more sense.

If airlines ignored the cost of buying the aircraft, of the gate fees, the ground staff, the maintenance people, and all those other things, they could fly for a whole lot less. But reality has marginal and non-marginal costs coming together to define what the true break even point is.

The only difference is that airlines have a fixed limit on the number of seats on a given plane, which means they use rate management / yield management to maximize revenue per seat, where as the band can produce the 500,001st copy for only the marginal and distribution costs, and perhaps finally start making some money.
[ link to this | view in thread ]
AR (profile), 11 Jan 2011 @ 4:32pm

Re: Re: Re: Re: Re: Re: Re: There's more.
Go back and read my earlier post. To repeat it. NO ONE CARES. Go whine to the judge in bankruptcy court.
[ link to this | view in thread ]
AR (profile), 11 Jan 2011 @ 4:42pm

Re: Re: Re: Re: Re: Re: Re: Re: There's more.
I'll get my own rocks!!!
[ link to this | view in thread ]
Jay (profile), 11 Jan 2011 @ 11:55pm

Re: Re: Re: Re: Re: Re: Re: There's more.
Didn't Mike already talk about this?
[ link to this | view in thread ]