STATEMENT BY ASSISTANT ATTORNEY GENERAL R. HEWITT PATE

US Department of Justice

WASHINGTON, D.C. R. Hewitt Pate, Assistant Attorney General in charge of the Departments Antitrust Division, issued the following statement today after the Department announced the closing of its investigation into the major record labels pressplay and MusicNet joint ventures:

The Divisions substantial investigation of pressplay and MusicNet has uncovered no evidence that the major record labels joint ventures have harmed competition or consumers of digital music. Consumers now have available to them an increasing variety of authorized outlets from which they can purchase digital music, and consumers are using those services in growing numbers.

None of the several theories of competitive harm that the Division considered were ultimately supported by the facts. The Division found no impermissible coordination among the record labels as to the terms on which they would individually license their music to third-party services. The development of the digital music marketplace similarly belies any concerns that the record labels used their joint ventures to stifle the development of the Internet music marketplace and to protect their present positions in the promotion and distribution of prerecorded music in physical form.

(Background information is below.)

DEPARTMENT OF JUSTICE ANTITRUST DIVISION STATEMENT REGARDING THE CLOSING OF ITS INVESTIGATION INTO THE MAJOR RECORD LABELS PRESSPLAY AND MUSICNET JOINT VENTURES

Today the Department of Justice announced that it has closed the Antitrust Divisions investigation of pressplay and MusicNet, two joint ventures formed by the major record labels to distribute music over the Internet. Pressplay began as a joint venture of major labels Sony Music Entertainment and Universal Music Group, but recently was sold to software supplier Roxio. MusicNet is a joint venture of major labels Warner Music Group, EMI Group, and BMG Music, as well as RealNetworks, an Internet media company.

The digital music world has changed dramatically since the Division opened its investigation in the summer of 2001. In significant part as a result of that change most notably the emergence of new competitors and Sonys and Universals sales of their controlling interests in pressplay the concerns that led the Division to open its investigation have now diminished or disappeared. Consumers can now download individual songs from a growing number of competing digital music suppliers, each of which offers songs from the music catalogs of all five of the major record labels. Consumers also have their choice of subscription-based music services that, for a monthly fee, allow subscribers to browse hundreds of thousands of songs, to listen to streams of an unlimited number of songs of their choice, and to download the particular songs they want to burn to compact discs or transfer to portable devices.

In its investigation of pressplay and MusicNet, the Division focused primarily on two questions. First, did the joint ventures restrain competition among the major record labels on the terms on which they would license their music to digital music services not owned by the record labels themselves? Second, did the joint ventures allow the major record labels to impede the growth of the Internet as a channel for the authorized promotion and distribution of music, and thereby help the major labels solidify their central roles in the existing music market? Having answered both questions in the negative, the Division has closed the investigation.

Pursuant to the Division's policy on the issuance of investigation closing guidance, available at http://www.usdoj.gov/atr/public/guidelines/201888.htm, the Division is providing this brief explanation of its analysis of the record labels joint ventures. This discussion is limited by the Divisions obligation to protect the confidentiality of certain information that it found useful to its analysis. Like all of the Divisions investigations, this one has been highly fact-specific, and many of the underlying facts central to the decision are not public. Consequently, readers should not draw overly broad conclusions regarding how the Division is likely to analyze particular collaborations or activities, or transactions involving particular firms, in the future. This statement is not intended to create or affect any party's rights or entitlements nor to bind the Division with respect to any future enforcement action.

The Internet Music Marketplace

When the Division opened its investigation into the major record labels joint ventures in the summer of 2001, the major record labels had authorized no Internet businesses to allow consumers to search a broad selection of their artists music and to download selected songs. Millions of consumers instead downloaded software released by entities such as KaZaA and Morpheus, which then allowed them to make unauthorized copies of music files that other users of the same software stored on their computers. The music files that consumers obtained through use of the peer-to-peer file-trading software were typically stored in a file format called MP3, which compressed songs into computer files that were small enough to be quickly and easily transferred over the Internet. The songs could then be played on a computer, transferred to portable MP3 players, or burned onto blank CDs that could be played by a users home stereo, car stereo, or portable CD player.