In defense of (Napster) collusion

Music consumers will benefit if Bertelsmann can convince the major record labels to conspire.

By Eric Boehlert

Nov 2, 2000 | So much for collusion.

Despite longtime complaints that major record labels work together behind the scenes to protect their marketplace monopoly, you could practically hear jaws dropping Tuesday morning as music business executives heard about Bertelsmann's historic deal with Napster. That's because they found out about it the same way everyone else did, including the Recording Industry Association of America: on the news wires.

The fact that Bertelsmann, owner of BMG Music (i.e. Dave Matthews, Christina Aguilera, etc.), would strike a deal with Napster at the same time the music giant was part of an aggressive industry lawsuit to shut the music file-swapping company down for copyright infringement, must have especially stunned and angered some major label chiefs.

Is that any way for a "cartel" to operate? "Cartel" is a favorite tag among online conspiracy theorists for the major record companies. But a cartel working in tight unison would never mix up its signals this badly -- particularly on such a sensitive and high-profile topic as Napster.

And would a cartel feature the kind of public sniping that came from Thomas Middelhoff, chairman and chief executive of Bertelsmann, at the triumphant press conference announcing the Napster alliance? "This is a call for the industry to wake up," said Middlehoff. "It is not enough to fight file-sharing in the courtroom."

Middelhoff sounded like he'd been recruited into Napster's army of attorneys. (Even more intriguingly -- no one from BMG distribution, which deals with brick-and-mortar retail on a daily basis, was part of the press conference. At a time when BMG is busy lining up retailer support for crucial fourth-quarter releases, the Napster announcement, which maps out a future in which consumers may bypass retailers completely, does not make life easy for the distribution team.)

It should also be noted that Bertelsmann's surprising move came just months after Universal Music Group also shunned the major label pack strategy when it refused to settle a copyright infringement case against MP3.com. Instead, Universal saw the case to trial. For a cartel with just five members, it seems the major labels have a tough time sticking together.

The irony is that for the pending subscription models to work, like the one BMG and Napster hope to launch in which users will pay a monthly fee, the major labels will have to team up and work in unison. In other words, they will need to find a way to (legally) collude.

Next Page: Price fixing: Just what the consumer ordered

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