Online Music Joint Ventures: Taken for a Song


In 2001 the five major record companies, controlling more than 80 percent of prerecorded music sales in the United States, announced the formation of two joint ventures to distribute music over the Internet. The Department of Justice opened an antitrust investigation into these ventures even before the ventures began their operations. Two and one-half years later the Department announced that it had closed the investigation because its "theoretical concerns ultimately were not supported by the evidence." The Department's investigation, however, focused on the ventures' licensing practices rather than on their formation.

This paper focuses on the formation of the online music joint ventures. The paper begins with a description of the business and legal environment in which the joint ventures were formed and traces developments in both since the ventures' formation. Included in this description is the effort by the industry to suppress widespread copyright infringement and the entry of a number of new companies into the online music market. The paper's antitrust analysis examines the predicted anticompetitive effects of the formation of the ventures and, drawing on the Supreme Court's decision in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. and the history of performing rights organizations, argues that the efficiency justifications for the online music joint ventures were quite modest. The paper concludes that the formation of the ventures was anticompetitive, without regard to the ventures' licensing practices, and that the appropriate remedy would have been either to unwind the two ventures or divest the record companies' ownership of them. Although the online music industry did not develop as might have been predicted when the ventures were formed, we owe these positive developments to the inability of the music industry to control the widespread infringement of their copyrights. Had the record industry's campaign been successful, the competitive structure in the online music market would likely have been quite different and the proposed antitrust remedies would have been necessary to bring competition to the market for online music.


Antitrust and Trade Regulation | Intellectual Property Law

Date of this Version

May 2004