U.S. Is Probing Apple Over Its Deals for Beats MusicDavid McLaughlin, Lucas Shaw and Tim Higgins
U.S. antitrust officials are scrutinizing Apple Inc.’s efforts to line up deals with record labels as it prepares to debut a new version of the Beats Music streaming service, according to people familiar with the matter.
The Federal Trade Commission is looking at whether Apple is using its position as the largest seller of music downloads through its iTunes store to put rival music services like Spotify Ltd. at a disadvantage, one of the people said.
The FTC’s inquiry could complicate Apple’s planned revamp of Beats Music this summer. Apple has approached more than a dozen artists including Florence and the Machine for limited exclusive rights to music and partnerships to help bolster the service, people familiar with the effort have said.
FTC officials have discussed Apple’s practices with more than one record label, according to music-industry executives with knowledge of the matter.
The FTC's investigators, still in the early stages, of their inquiry, are asking whether Apple’s efforts will change the way music labels work with other streaming services, for example curtailing ad-supported music and pushing more songs into paid tiers of service at higher rates, according to one of the people.
Apple hasn’t made such demands on the labels, according to the music-industry executives.
Representatives of the three major record companies, Universal Music Group, Sony Music Entertainment and Warner Music Group, declined to comment, as did Justin Cole, an FTC spokesman. Tom Neumayr, a spokesman for Cupertino, California-based Apple, didn’t respond to a request for comment.
Apple’s iTunes reoriented the music business around sales of songs through digital downloads. While global spending on online music totaled $6.85 billion last year, matching physical revenue for the first time, sales of downloads from sites like iTunes fell 8 percent, according to the International Federation of the Phonographic Industry.
Music-streaming services like Spotify and are now leading the growth -- revenue from subscription streaming and ad-supported streaming each increased 39 percent in 2014. Apple is using Beats Music, acquired as part of the $3 billion purchase of Beats Electronics LLC last year, to advance its efforts in this area.
Consolidation has narrowed the music industry’s major players to three -- Universal, owned by Vivendi SA, Warner Music, owned by billionaire Len Blavatnik, and Sony Corp.’s music unit. The FTC approved Universal’s purchase of the recorded-music business of EMI Group, best known as the record label of the Beatles, in 2012, saying it didn’t find enough evidence the transaction would hurt competition.
Apple is no stranger to antitrust enforcement by the U.S. government. The U.S. government sued Apple and five publishers in 2012, claiming Apple pushed the publishers to sign agreements letting it sell digital copies of their books under a pricing model that made most e-books more expensive.
Apple and the publishers used the contracts to force Amazon.com to change its pricing model, the government claimed. At the time, Amazon was selling electronic versions of best-selling books for $9.99, which was often below cost.
A federal judge in Manhattan ruled that Apple violated antitrust law and installed a monitor to supervise the company’s compliance with antitrust laws.
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