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Attorney General Lockyer Announces $143 Million in Consumer Benefits from Multi-State Settlement of CD Price-Fixing Complaint Against Music Distributors

Monday, September 30, 2002
Contact: (415) 703-5837

(SACRAMENTO) – Attorney General Bill Lockyer announced today that five of the largest U.S. distributors of music CDs and three national chain stores have agreed to pay $67.4 million for consumer refunds and provide some seven million free music CDs valued at $75.7 million for schools, libraries and charities to settle a multi-state price-fixing complaint.

The free music CDs are going to public schools and libraries. Partial refund payments will be mailed to consumers who submit valid claims to a court-appointed claims administrator. Details of the refund program will be announced later, once the court approves the settlement. Contrary to some news media reports appearing on this settlement, there are no free CDs being given to consumers at the retail stores.

"Our antitrust investigation found illegal sales agreements being used to stifle competition and fix the prices of music CDs," Lockyer said. "Instead of benefitting from a competitive marketplace, consumers looking for music entertainment had their pocketbooks squeezed by these secret deals to artificially inflate prices."

Under the settlement agreement filed in federal court in Maine, the more than $143 million in consumer compensation would be provided by music distributors Bertelsmann Music Group, Inc., Capitol Records, Inc. (EMI Music Distribution, Virgin Records America, Inc., and Priority Records, LLC), Warner-Elektra-Atlantic Corporation, Sony Music Entertainment, Inc., Universal Music Group and national retail chains Transworld Entertainment Corporation, Tower Records, and Musicland Stores Corporation. In agreeing to the settlement, the defendants admit no wrongdoing.

The settlement resolves the antitrust complaint filed by California, 39 other states and three territories. The complaint alleged that the five music distributors, their affiliated record labels and the three national retailers of music CDs entered into illegal conspiracies to sell the compact discs at set minimum prices. Under the alleged scheme, the music distributors subsidized the promotional costs for selling music CDs for retailers who agreed to minimum advertised prices dictated by the music distributors.

Lockyer noted that California's share of the total refunds is nearly $6 million, which would be distributed to consumers as refunds of up to $20 or to benefit the public generally if the number of claims makes individual refunds too small. An estimated 657,000 CDs valued at $8.9 million also would be available for distribution to public libraries and schools in the state. Further details on the settlement are being made available by the claims administrator.

Under the settlement submitted to the court for approval, the defendants agreed to:

* Make Sales Practice Changes to Ensure Strong Market Competition. Among other things, the defendants agreed to refrain from agreements or business practices during the next seven years that are designed to influence or control the price at which retailers can sell music CDs. It includes a prohibition against the unilateral termination of business with dealers and retailers who fail to sell music CDs only at suggested retail prices.

* Provide Consumer Compensation. A total $67.4 million will be made available for partial refunds to consumers who purchased prerecorded music from 1995 to 2000, the period during which the objectionable policies were in place. Consumers will be asked to submit a claim using an online or written claim form developed by the court-approved claims administrator. Details of the claims process will be announced later.

* Benefits for Schools, Libraries, Charities. Because of the difficulty in determining how much individual consumers overpaid for each CD purchased over the years, the settlement will make available approximately seven million CDs of various musical genres, valued at $75.7 million, for distribution by the state attorneys general to public libraries, schools and charitable groups for the benefit of all consumers. In California, public libraries and schools will be given priority in receiving the music CD packages. Subject to court approval, the music CD distribution could begin as soon as the spring of 2003.

In addition to California, the states and territories entering the settlement are: Alabama, Alaska, Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Mississippi, Montana, Nevada, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, Northern Mariana Islands, Puerto Rico and the Virgin Islands. Class-action claims for consumers in other states also were settled by private counsel.

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