Friday, May 23, 2003

Antitrust News: CD Settlement

The infamous compact disc price-fixing settlement nears final approval:

PORTLAND, Maine - A federal judge plans to rule next week on the proposed settlement of a music antitrust lawsuit that would put roughly $12.60 in the pockets of 3.5 million consumers.

Judge D. Brock Hornby heard testimony for more than three hours Thursday on the fairness of the agreement that calls for music distributors and retailers to pay $143 million in cash and compact disks.

Terms of the settlement call for checks to be mailed to 3.5 million people who filed claims under the class-action lawsuit. The actual amount depends on how much money goes to lawyers and distribution fees.

The payout would culminate an antitrust suit that was started by prosecutors in several states in 1996.

The lawsuit, signed by the attorneys general of 43 states and territories and consolidated in Portland in October 2000, accused major record labels and large music retailers facing competition from discount retailers like Target and Wal-Mart of conspiring to set minimum music prices.

The defendants — Sony Music Entertainment, EMI Music Distribution, Warner-Elektra-Atlantic Corp., Universal Music Group and Bertelsmann Music Group, as well as retailers Tower Records, Musicland Stores and Transworld Entertainment — deny any wrongdoing. Attorneys representing the companies declined to testify in court.

Of the total settlement amount, $75.7 million would be distributed in the form of 5.6 million music CDs sent to libraries and schools throughout the nation.

The proposed cash settlement in the case totals $67.3 million.The actual cash distributed to the public is expected to be around $44 million. Payments should be mailed out within weeks of the settlement's approval. The remaining cash will be eaten up by distribution costs and attorney fees.

This case is first and foremost about enriching attorneys. No serious person would argue consumers suffered a legal injury because they chose to buy a CD at a given price. Whether or not the record companies agreed to set minimum prices is irrelevant, since it's their product to sell in the first place. This settlement effectively grants consumers a government-coerced rebate.

The state attorneys general behind this case win on every front: they enrich their trial lawyer buddies, who in turn will support their future election campaigns; consumers get a warm fuzzy over the $12 and change they get for doing absolutely nothing; and a group of major companies lose a chunk of their hard-earned wealth, thus further eroding America's belief in capitalism as the proper basis of society. All in all, not a bad day's work if you're a parasitic state attorney general.

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