News: Spitzer targets music giants

Business Standard

Subpoenas issued to EMI, Universal Music, Sony BMG Music Entertainment and Warner Music

Stephanie Kirchgaessner & David Wells
New YorkOctober 25, 2004

The recording industry, already battered by a surge in recent years of illegal music piracy, increased competition and heavy regulatory scrutiny, is facing a new and potentially costly examination into its practices by Eliot Spitzer, the New Yorkattorney-general.

Spitzer, whose investigations into conflicts on Wall Street and, most recently, bid rigging in the insurance industry, has had devastating effects on the companies involved, has issued subpoenas to the music industry’s four biggest groups: EMI, Universal Music, Sony BMG Music Entertainment, and Warner Music, according to a person familiar with the probe.

Britain’s EMI, the third-largest record company, on Friday said that “along with other companies in the music and broadcast industries” it had received a request from Spitzer for information regarding practices in connection with the promotion of records on New York state radio stations.

“We are co-operating fully with this inquiry, which is at a preliminary stage,” the company said.

Spitzer’s probe is understood to be centred on what one industry expert called the “second oldest” profession — music companies paying so-called “independent” promoters to urge radio groups to play its songs — or“pay-to-play”.

The music companies are prohibited by federal regulations to pay radio groups directly to play their tracks without disclosing that the payment has been made.

EMI said it had a “long-standing, strict, written policy” prohibiting unlawful radio promotion — a policy that was reaffirmed internally this year — and it did not believe the probe would have any “material financial impact”.

A different music group said it was too early to tell whether the investigation would lead to new, costly regulations or a settlement by the music industry. News of the investigation, which was first reported bythe New York Times on Friday, did not come as asurprise to many industry observers following an earlier probe into the industry by Spitzer.

In 2002, a group of leading record companies and retailers agreed to pay $143 million to settle price-fixing charges filed against them by the attorneys-general of 43 states.

Sony BMG, Universal and Warner Music declined to comment.

Clear Channel, the largest US radio station chain, said it did not receive a subpoena by Spitzer’s office.