Record Co's Sued Over CD Prices

Wednesday, August 9th 2000, 12:00 am

By: News On 6

NEW YORK (AP) â€” Record companies should pay back millions of dollars in illegal profits they collected by forcing discount stores to raise CD prices in 1995, attorneys general for 28 states alleged in a lawsuit Tuesday.

``These illegal actions certainly have not been music to the ears of the public,'' New York Attorney General Eliot Spitzer said at a news conference as the lawsuit was filed in U.S. District Court in Manhattan.

The music companies maintain that they threatened to stop supplying discount chains with thousands of advertising dollars in the mid-1990s because the chains were selling CDs at below wholesale cost, driving some record stores out of business. They indicated Tuesday that they would contest the lawsuit.

The lawsuit comes three months after the five major music distributors, while admitting no wrongdoing, settled Federal Trade Commission charges they unfairly inflated CD prices.

Under that deal, the companies agreed to discontinue minimum advertised price programs that forced retailers to sell music CDs at or above a set level in return for getting substantial advertising funding.

Spitzer said the lawsuit, which seeks unspecified damages, was meant to force record companies to pay back the profits they made illegally.

He said he could not yet estimate the value of those profits but said the $480 million estimated by the FTC sounded reasonable.

Keith Estabrook, a spokesman for BMG Music, said the company still believed that the pricing policy ``was a legitimate and appropriate practice and we are confident that the courts will reach the same conclusion.''

Will Tanous, a Warner Music spokesman, concurred, saying the pricing policies served ``a valid business purpose and benefited consumers by substantially furthering retail competition.''

``It was an appropriate and lawful practice,'' he added.

Dawn Bridges, an EMI Music spokeswoman, said the claims were without merit. Sony Music spokesman Keith McCarthy said he had no comment, while Universal Music did not immediately return a telephone message seeking comment.

Doug Curry, a spokesman for the Recording Industry Association of America, declined to comment.

The lawsuit by the states essentially does what the FTC promised not to do in its settlement deal: seek damages for past pricing tactics. But the attorneys general said they were seeking damages on behalf of the consumers they represent.

They said the record companies in February 1995 conspired to force several large discount retailers to raise prices after the retailers bought CDs in such large volume that they could undercut the prevailing high retail prices.

``The purpose of the illegal agreements was to raise prices and reduce retail price competition which threatened the high and stable profit margins for CDs enjoyed by both the defendant labels and distributors and many music retailers,'' the lawsuit said.

The deals initially drew vigorous protests from discount retailers but the chains eventually gave up because the financial penalty for not participating in the scheme was too costly, the lawsuit said.

As a result, CD prices stabilized and then rose, the lawsuit said.

Besides the record companies, the lawsuit named some large record stores as defendants, including Tower Records.

Russ Solomon, chairman of the Sacramento, Calif.-based Tower, did not immediately return a telephone message. But he scoffed at the FTC's prediction earlier this year that the settlement would result in lower CD prices.

``Prices are not coming down,'' he told the Los Angeles Times. ``They're already at rock bottom. It's outrageous to mislead music fans to think otherwise.''

According to the FTC, the five companies distribute 85 percent of the music CDs sold in the United States, an industry that reported a record $15 billion in sales last year. The average CD now costs $14 to $17, though discount stores had once sold some popular CDs for as little as $10.

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The following states were named as plaintiffs in the lawsuit: Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Mississippi, Missouri, Nevada, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas, Utah, Vermont, Washington, West Virginia and Wisconsin. Also named as plaintiffs were the Northern Mariana Islands and Puerto Rico.