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Did Apple use its online music monopoly to prevent much smaller competitor Amazon from landing music deals? The U.S. Department of Justice is investigating.  (Source: Dave's Whiteboard)
Apple's anti-Amazon moves may cost it some big fines

When it comes to the digital music sales market, services like Amazon or Zune Pass have made a minor splash, but Apple has long dominated the market.  Over the last two decades, antitrust regulators in the U.S. and Europe have imposed fines and restrictions on Microsoft and Intel to try to prevent them from abusing their dominant position in several markets.  However, they have cast a largely blind eye on Apple's iTunes -- until now.

Antitrust investigators with the U.S. Department of Justice are conducting an extensive inquiry into Apple's online music business, interviewing Apple employees, internet music company employees, and music label employees according to the
New York Times.  At the core of the investigation is the allegation that Apple applied pressure to force music labels not to grant Amazon.com access to exclusive tracks to help grow the online retailer's fledgling music market.

A previous investigation was conducted several years back in the European Union, examining Apple's iTunes pricing practices.  The investigation's conclusions were highly critical of Apple, but did not levy any fines -- unlike recent EU investigations into Microsoft and Intel.

In March, it was reported in 
Billboard magazine that Amazon.com would be getting certain songs a day before they were widely released.  It would put these songs in a special promotional section dubbed "MP3 Daily Deal."  According to the article, Apple hated the idea and threatened music labels that participated.  Specifically, it vowed not to sell the songs featured in the promotion on iTunes -- a much bigger marketplace.

ITunes reportedly owns 69 percent of the online music market, according to the NPD group. The next closest competitor in the online market is Amazon, which holds an 8 percent share. The remaining 23 percent are split up among smaller players.

In 2007 Apple had a mere 12 percent of the total music market (both online and offline), but it recently became the largest single seller of music in the world, with 26.7 percent of the overall market.

Daniel L. Brown, an antitrust lawyer at Sheppard Mullin Richter & Hampton states, "Certainly if the Justice Department is getting involved, it raises the possibility of potential serious problems down the road for Apple.  Without knowing what acts or practices they are targeting, it’s difficult to say exactly how big a problem this is, but it’s probably something Apple is already concerned about."

Apple now has dominant positions in several markets -- tablet computing (iPad), portable music players (iPod), smart phone applications (iTunes App Store), and online music (iTunes Music Store).  Thus it has leverage to use its position to damage competitors, if it should so choose.

The new investigation is at least the fourth antitrust inquiry into Apple.  The U.S. government is also investigating Apple, Palm and others to see whether the companies illegally agreed not poach each others' employees (Apple's CEO Steven P. Jobs secretly suggested such a truce, which appears to be illegal).  The government is also investigating Apple's ban on Flash for the iPhone or iPad and its decision to block out ports of Flash titles to native iPhone code.  And there's also a pending investigation about whether board members serving on both Apple's and Google's boards violated antitrust laws.

ITunes first launched in 2001 and has long been on the forefront of the push for legal online music downloads.  Apple has sold over 10 billion tracks on iTunes to date, and has become one of the biggest revenue sources for the struggling music industry.  Apple also has supported a number of smaller independent artists by promoting them and giving them tools to expose their work to a broader audience.  Apple also has recently made some steps to increase competition, such as allowing streaming music services such as Pandora and Rhapsody onto Apple devices.

Spokespeople for Apple and Amazon would not comment on the inquiry.  Gina Talamona, a deputy director at the Justice Department, also had no comment.



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RE: wow
By JasonMick (blog) on 5/26/2010 10:29:12 AM , Rating: 5
quote:
Just like Microsoft did a decade ago. Oh wait...that's right they never did crumble.

Ok how about this: Looks like people are finally *saying* Apple will crumble (just like Microsoft).

That's better.


Jokes aside, I'm not sure either of you really understand the government's actions here.

The goal with Microsoft, Intel, and now Apple was never to kill them or "make them crumble". Rather it's to prevent them from abusing their position. Most industrialized nations have no laws preventing a monopoly. Rather they have laws preventing a company from abusing its monopolistic position.

While fines levied against Intel and Microsoft by the U.S. DOJ and EU's EC seem massive, they're just a drop in the bucket compared to these companies quarterly revenue (maybe something like 1/30 of the year's revenue). However, they're large enough to make the companies think twice about trying to kill the competition.

The merits of such laws are certainly open to debate, but they seem to have been at least mildly successful with regards to Intel and Microsoft in the U.S. and EU. Microsoft now is much more open in letting software competitors design products that can FULLY exploit its systems' capabilities (e.g. Open Office 3, Google Docs, Firefox, etc.). And Intel has reportedly stopped trying to pressure retailers to ban AMD products in return for discounts. In both cases the companies maintained their dominant position, for the most part, but consumers gained access to new products, should they want them.

Hopefully the same kinds of benefits will result from the Apple antitrust inquiries.

I know anti-Apple fervor is high right now and many would love to see Apple "crumble" but that is absolutely NOT the government's role. That should be up to the free market to decide. Fortunately, the government has no intentions to take on such a role.


RE: wow
By Reclaimer77 on 5/26/10, Rating: -1
RE: wow
By JasonMick (blog) on 5/26/2010 1:30:22 PM , Rating: 5
quote:
We've already seen the outright government takeover of GM. So how you can sit there and say they have no intentions of getting involved in businesses and deciding their fate is foolishness.


The takeover of GM has very little to do with government antitrust regulation (other than perhaps some vast liberal conspiracy in your mind). Besides if your point was that the government was destroying companies, you accidentally provided evidence to the contrary -- the government artificially SAVED GM from complete liquidation of all assets due to lack of a bank that could underwrite the bankruptcy process.

quote:
Well actually they are probably going to pass sweeping "financial reform" which, with ZERO oversight, the government can take over any business it sees fit for any reason.


I meant the government as a whole. Sure there are radical left voices (Patty Murray, Jack Reed) that might advocate mild socialism. However, there's equally radical right voices (the soon to be elected Rand Paul, for example) to balance that out by advocating ZERO regulation and letting abusive monopolies do whatever they want.

The radicals on both ends make a lot of noise, but thus far the result has generally been yes, there is government regulation of monopolies to prevent abuse, but no the government isn't destroying companies.


RE: wow
By Reclaimer77 on 5/26/2010 2:09:48 PM , Rating: 2
My mistake. I was making a broader point than JUST anti-trust. I see how off key my post must have looked now.


RE: wow
By sbtech on 5/27/2010 5:43:18 AM , Rating: 2
Jason rounded up the points very well. I just want to stress on one aspect in perticular, as every time there is a debate on this issue, people keep posting "but they are not monopoly", and so on. The regulation is:

The Monopolies And Restrictive Trade Practices Act.

Further reading:

http://vakilno1.com/bareacts/mrtpact/mrtpact.htm


"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA














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