Microsoft To Settle Class Actions, Record Labels Face Scrutiny

December 2003

Computer Software, Telecommunications, Record Labels

Microsoft has agreed to settle class action lawsuits from a number of US states which alleged that the software giant abused its dominant market position. Microsoft are handing out discounts worth approximately USD $200 million to consumers and schools in several US states including Kansas, North Dakota, South Dakota and Tennessee. The Times(29/10/03) estimate that Microsoft has paid out more than $1.5 billion over the last ten years in anti-trust and competition payments. Microsoft is now facing further actions from the US Government and state justice departments who have raised concerns the world’s largest software maker is trying to use its dominant Windows operating system to influence where customers buy their music online. If action is brought, it will be the first test of Microsoft’s unique and federal Court approved anti-trust settlement. The Justice Department and 19 state attorneys general have formally complained to a federal judge about a design feature of Windows that compels consumers who buy music online to use only Microsoft’s Internet Explorer browser and steers them to a web site operated by the company. Microsoft is also now facing competition investigations from the European Commission.

In another anti-trust action, the five major record labels (EMI, Warners, BMG, Sony and Universal) and the three largest distributors of CDs (Transworld, Tower Records and Musicland) entered into an antitrust settlement with the US Government in September 2002 after they were accused of price fixing totalling US $143 million offset by the distribution of 5.5 million CDs to public entities and non profit organisations to benefit CD consumers and to promote music. (source: New York Attorney Generals Office). However it should be noted that the average price of CDs in the US in 1996 was $12.70 and in 2001 $14.70. The Majors control 83% of the CD market in the USA. The largest major, the Universal Music Group has recently unilaterally cut CD prices in the USA. Universal announced in September that it will drop its frontline pricing in the U.S. to $12.98 from $18.98. It will also interesting to see how both US and European regulators react to the proposed EMI-Warner Music and BMG-Sony mergers, leaving just three companies controlling over three quarters of the global recorded music market.

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