19. Investigation of theories of harm

1. Several theories of harm have been suggested during the market investigation, principally by Impala, the association of independent record companies. No other market player or observer than Impala and a very few number of its members have put forward theories of harm in the market investigation.

2. Several of those theories focus on coordination to stabilize the net wholesale prices of physical albums at a higher level than competitive price, while others focus on coordination by the major recording companies on other non price-related areas which, as an effect, would restrict independent record companies from accessing retailers161.

3. A market participant submitted that majors also coordinate on non-price aspects of the market for recorded music, notably by limiting independent competitor’s access to retailers, foreclosing independent competitors from access to radio airplay, influencing chart rules, and coordinating on release dates or coordinating on publishing and recording activities. It is however not clear that these topics would restrict competition between majors.

Access to retailers

1. During the market investigation, 47% of retailers submitted that majors compete on marketing and promotion of their artists, including access to shelf-space of retailers. The analysis conducted by the Commission with regards to the discounts granted by the different majors to retailers in all countries.

2. All retailers also submitted that shelf space allocation is their own decision and that it is based on their perception of potential sales of each album. Record companies can have an influence by promoting albums and proposing high rebates, like in any industry, although the final decision remains within the staff of the retailer. No coordinated approach from record companies has been reported on this matter.

3. Likewise, retailers submitted that independents and majors have the same level of access to their shops. The vast majority submitted that independents do not have more difficulties than major record companies in gaining access to shelf space and promotion space188, as they are offered the same conditions as majors.

4. Several retailers acknowledged that they promote albums of majors more than those of independents, but they referred to the higher success rate and higher potential of albums released by majors as a reason for their choice. A number of independent retailers also indicated that they largely open their shelf space to independents, some with significant market presence, in order to differentiate their offer from hits proposed by supermarkets. More generally, the market investigation confirms that retailers focus on the sales potential of albums rather than on the record company, be it a major or an independent one.

5. One market observer suggested that major record companies “bundle” their products, by proposing to retailers to promote a new artist in exchange for obtaining a privileged access to an album of a famous artist. During the market investigation, all retailers without exception confirmed that such practice was not taking place189. Therefore, independents are not foreclosed from retail space by majors leveraging their repertoire. In addition, such a leveraging could affect relations between the major and the established artist whose albums are used in such an operation.

6. It is the objective of retailers to maximize their sales. Therefore, it is logical from their perspective to grant major record companies better access to shelf space, as they produce more hits selling large volumes. Nevertheless, the market investigation confirmed that hits released by independent record companies benefit from similar conditions as hits released by major companies190. Shelf space is allocated independently by retailers, on the basis of their own evaluation of the potential sales of albums. It can therefore be concluded that there is no coordinated approach from major record companies with regard to access to retail space.

Access to airplay

1. Most successful radios in the EEA broadcast music on the basis of a playlist. A number of music titles are on the playlist and are regularly broadcasted, generally several times a day. Other titles, not on the playlist, are also broadcasted on an irregular basis. Therefore, all record companies compete to be registered on such playlists as regular and sustained airplay is one of the factor supporting sales.

2. As for access to retail space, majors have a privileged access to radio airplay, reflecting the number of hits they release every year. It has also been submitted by one competitor that radio programmers prefer to work with the majors as they propose hits regularly, as opposed to the independents who propose one or two hits a year. Similarly one competitor submitted that majors have the financial capacity to advertise hits on TV or on radio, therefore increasing the demand for advertised titles and ultimately the likelihood that radio programmers put these titles on their playlists.

3. An analysis of the percentage of airplay for all majors and independent record companies in all EEA Contracting Parties between 2003 and 2005 showed that the percentage of combined airplay for independent record companies in fact increased in 10 out of the 15 countries analysed during that period.

Chart rules

1. The Commission received information from independent competitors that major record companies, whose representatives are members of charts executive committees at national level, have on several occasions, notably in France in 2005, changed the rules of the charts in order to favour their artists and deny access to artists of independent record companies to the charts.

2. The notifying parties submit that whilst it is the case in most Contracting Parties to the EEA Agreement that chart rules are decided by committees within the music industry (which, given their role within the music industry, will usually include representatives of one or more of the majors), it is not the case that all majors are part of the chart rules decision-making process nor is it necessarily the case that all majors take part in the process.

3. The 2005 chart executive committee meetings minutes for France, Germany, Spain and the United Kingdom show that the four majors, as well as the main independent record companies, are all part of the chart rules decision-making process in these countries, but did not show any obvious coordinated behaviour from the majors to change chart rules with the objective of handicapping artists from independent record companies.

4. In France, the chart rules were indeed changed in 2005 and independent record companies formally complained that the new criteria defining new releases as albums on sales for less than two years and with a PPD higher than EUR 5 meant that mid-price albums would be included in new releases charts, a situation that would favour major record companies which have large mid-price catalogues, as opposed to independent record companies. Chart rules published on the website of the Syndicat National de L’Edition Phonographique, the SNEP, the organization responsible with the Institut français d’opinion publique, the IFOP, for managing the charts publications, stipulate that the new rules voted indeed define new releases as being albums on sales for less than two years, but with PPDs being higher than EUR 10 and not EUR 5, thereby excluding mid-price CDs of the new release category.

5. The Commission also received information that chart rules can potentially increase transparency and alignment in prices as in 12 Contracting Parties to the EEA Agreement, minimum price limits exists in chart rules in order to define whether albums will enter and be rated in the charts192. Whereas it is true that given the importance of charts albums in the total sales of recording companies, all of them will ensure that for a certain period of time after the release of the majority of their new CD albums, the price of these albums will be higher than the minimum price set in the chart rules. The minimum price level to enter charts is however fixed at a low level if compared with PPDs generally used to price albums having the potential to realize high sales (EUR 10-13). This minimum price as such is therefore unlikely to act as a threshold for price settings by majors.

6. It was also indicated to the Commission that the weekly publication of chart rankings also contributes to the transparency of the market as it provides regular information about the evolution of the popularity of different releases at any given point in time. While it may be true that the upwards and downwards movements of CD albums in the charts can represent a transparent proxy for their sales increase and decrease, it should, however, be noted that this practice of publishing weekly chart rankings, whose primary aim is to provide customers with information about the success of the releases of artists at any given point in time, is not specific to this market193.

7. To conclude, while the existence of charts can indeed increase the market transparency by providing regular information to all observers, including major record companies, on how the CDs albums of their competitors perform in terms of sales, the Commission’s investigation did not find any evidence that majors are using chart rules as an opportunity to deny access to the charts by artists of independent record companies. In addition, the Commission notes that minimum prices exist in 12 Contracting Parties to the EEA Agreement for CD albums to enter the charts, but consider that these prices are too low to hinder competition between record companies on setting different gross prices and constitute focal points for a possible coordinated approach by majors on PPDs.

Release date

1. It has been reported to the Commission that the majors together control a number of competitive parameters, including release dates, thereby suggesting that they could coordinate the release of their respective albums.

2. It has indeed been submitted by the notifying parties that ideally a new album should be released when competition with similar albums is not too fierce, but also when there are sufficient novelties on the market to generate traffic in retail outlets. The notifying parties however qualify this statement by submitting that it is not unusual that announced release dates of new CD albums are postponed, sometimes by several months, for example because artists have not finished the recording of the album in time, making this possible management of their own album’s release dates by comparison with competitors’ release dates more difficult in practice.

3. Sony BMG has nevertheless recognised that decisions with regard to release dates are influenced by the release dates of competitors’ albums. In addition, release dates of albums are largely publicised and therefore completely transparent sometimes several months in advance.

It should, however, be noted that the behaviour of majors in this regard can hardly be qualified as collusion and seems more based on competition, following the rule “first come, first served”. It can be assumed that the objective of such behavior would be more aimed at avoid for example two albums addressing the same audience being released on the same date, and to maximize ranking in charts.

This item is part of the series of posts based on the European Antitrust Agency 2007 Music Industry Analysis for the Sony BMG Case. It’s home page is here.

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