Apple and major labels investigated for collusion

The attorneys general oftwo US states are investigating Apple’s negotiations with record labels to determine whether there are any signs of industry collusion.

Eric T. Schneiderman and George Jepsen, Government officials from New York and Connecticut, launched an antitrust investigation following suspicions Apple tried to persuade labels – or labels collectively conspired with Apple – to abandon free ad-supported tiers like those offered by Spotify and YouTube.

According to The New York Times Universal Music Group has said it is cooperating with the investigation. In a letter sent by UMG’s legal firm, Hunton & Williams, to the attorneys general, the major label denied any wrongdoing:

“UMG does not currently have any agreements with Apple Inc. (i) to impede the availability of third-party free or ad-supported music streaming services or (ii) that limit, restrict, or prevent UMG from licensing its recorded music repertoire to any music streaming service on any terms that UMG may choose,” the three-page letter states. “Nor does UMH intend t enter any such agreements.”

The attorneys general were both involved in a 2012 investigation where the DoJ sued Appleand five majore-bookpublishers over an alleged collusion ofe-bookprice fixing. Apple allegedly paid US$450m to settle the lawsuit in mid-2014.

In a statement, Connecticut attorney general George Jepsen said: “We will continue to monitor that market to ensure that consumers and competition are protected.”

A statement released by Schneiderman's office said: "It’s important to ensure that the market continues to develop free from collusion and other anticompetitive practices."

Apple won’t offer a free version of Apple Music, unlike its main competitor Spotify, but it has made its human-curated, live DJ radio service free and plans to let artists and labels offer free content on its promotional Connect platform.First up is Drake who told the crowd at Apple Music’s WWDC launch yesterday that he would release his next album viaApple Musicand Connect.

During Apple’s seemingly ongoing negotiations with labels, the tech giant was reportedly met with a backlash about its pricing. Apple will likely charge $9.99 per month for an individual plan and has confirmed its $14.99 per month rate for a family plan, but prior to this it was pushing to set the price at US$7.99 a month, lower than its rivals. But during licensing negotiations, the labels insisted it charge $9.99. The record companies, so the reports go, told Apple that if it did opt for $7.99, then it would have to absorb the difference.

Initially, labels tolerated free digital music because it counter-balanced the falling of revenue from CDs and the lure of piracy. But a change of attitude from the label sector has surfaced in recent years.

Last month, Stephen Cooper, the chief executive of the Warner Music Group, addressed investors following the release of WMG’s Q2 results. He said:“Before people conclude that freemium should be burnt at the stake, we should think very carefully about the consequences.”

Sony Corp’s chief financial officer Kevin Kelleher recently told investors that any free offerings are a threat to achieving a predicted 60% of its total revenue from paid subscription services. "The key question is, are the free, ad-supported services taking away from how quickly and to what extent we can grow those paid services?” Kelleher said. "That's something we're paying attention to as content owners.”

Sony Music chairman and CEODoug MorristoldHits Magazinein March that free music was detrimental to the music industry: “Basically, I equate ‘free’ with the decline of the music business. Why should anyone pay for anything if they can get it for free? In certain instances, it’s worth a discussion.”

In December last year Warner Music CEO Stephen Coopersaid: “We continue to believe that the long-term sustainability of the “freemium” model is predicated on high levels of conversion from ad-supported “free” to paid subscription. Of course, in order to achieve those levels, the benefits of paid subscriptions must be clearly differentiated from the ad-supported offerings.”

TMN has reached out to Apple for comment.