Record Co's sued for a half billion dollars

Jose G. Perez jg_perez at
Wed Aug 9 15:48:27 MDT 2000

    People who live in glass houses should not throw stones.

    And people engaged in criminal price-fixing conspiracies to fleece
the public should not go around suing others for theft.

    That's the moral for the media octopus soon to be formerly known
as Time Warner and the other four music monopolies that control the
recording industry, who today have been sued by 28 states who are
demanding the companies fork over around half a billion dollars in
illegally obtained profits.

    These five are the same companies trying to shut down the music
file exchange service, Napster.

    The illegal price-fixing scheme worked like this. If as a retailer
you discounted CD prices below a certain minimum set by the record
companies, then the record companies would not reimburse you for part
of your advertising costs.

    These sorts of payola and plugola kickback schemes are a plague in
U.S. retailing. Basically, the larger monopolies have two wholesale
prices, the official wholesale price they charge everyone and the real
effective wholesale price that results once you add back in all sorts
of rebates, subsidies, sponsorships, co-promotion money and so on. In
this way the makers of junk food crapola are able to bribe and
blackmail retailers into putting their competitor's products in much
less favorable positions or even drive them from the shelves
altogether, thus maintaining humongous monopolistic markups over other
products that are essentially the same and sometimes even completely
identical, made in the same plant from the same raw materials using
the same process and just packaged in different-colored but otherwise
identical boxes or bottles.

    In this case, the record companies have already confessed to
carrying out the scheme and in May signed an sweetheart deal with the
feds which let them off scot-free without as much as a slap on the
wrist in exchange for a statement by the record companies that they
had done nothing wrong but wouldn't do it any more.

    The record companies responded to today's suit by insisting they
were little angels.

    Most outrageous was Warner Music mouthpiece Will Tanous, who had
the balls to claim that the racket "benefited consumers by
substantially furthering retail competition.''

    How, pray tell, does fixing retail prices benefit consumers? Well,
you see, if the stores' prices were too low, they might not make money
and go bankrupt, and then there would be fewer stores and less

    The $480 million figure comes from the federal trade commission's
proceedings which ended in the sweetheart deal with the CD Cartel, and
God knows how it was arrived at, but it was clearly too low by an
order of magnitude or more.

    For a real idea of how savagely music lover are being mugged,
consider the fact that cassette tapes often sell for half the full
retail price of a CD, and that cassettes are more expensive both to
manufacture and to sell that CDs (because they move more slowly and
are easier to steal). CD sales were more than $14 billion last year in
the U.S. If just 10% of that was overcharging, that's nearly three
times the entire amount being mentioned for the life of a conspiracy
that began, according to the complaint, in 1995.

    This case sheds light on the ongoing, virtually unpublicized
lawsuit against Hacker zine 2600 for posting a link to a page where
one could obtain information and programs to play DVDs on Linux
computers. Basically, some idiot at a DVD manufacturer failed to
encrypt the digital key that is needed to "unlock" a DVD ... and based
on this information, some 18 or 19 year old in Norway or somewhere
proceeded to generate a few hundred more working keys.

    The position of the movie companies which, Oh Happy Coincidence!,
are largely the same folks as the record companies is that it isn't
enough for you to buy a DVD. You also have to buy from them or one of
their licensees a DVD player or DVD playing software for your
computer, which, needless to say, the cartel of media and electronics
monopolies that own the DVD standard refuse to offer for Linux
(probably as a professional courtesy to Microsoft from one shark to

    IF you were able to decrypt the movie, the media moguls claim,
then you could pirate it.

    Technically speaking, this statement is as hoaky as it gets.
Because to be able to WATCH the movie it must be decrypted, and once
decrypted, setting up the right software and hardware to catch the
data stream and store it in an unencrypted format is just a matter of

    What protects DVD's today is just the raw amount of the
unencrypted data, which is also what protected CD's for many years. In
addition, DVD movies are compressed and they get uncompressed as they
get decrypted, making the amount of raw date even larger. But as
computer processing speed and storage increase, copying a movie will
become as easy as ripping or copying a CD.

    What is the REAL reason for why the media monopolies are trying to
protect their encryption is to perpetuate regional encoding, which
prevents DVD's manufactured for the U.S. market from being played in
Europe, Asia or Latin America. The story of the media moguls is that,
gee, someone could order American DVD's and use those to record
pirated videos for sale in countries where the movie isn't released
yet, at least not on home video. This theory is as specious as it
gets, for it assumes the putative pirates would never think of going
to the U.S. to buy a U.S. market DVD player even though they're clever
enough to go to the U.S. to buy the DVD's themselves. It's just one
more example of how modern capitalist firms manipulate the world
market to segment it and chop it up into smaller pieces that are
easier for them to extort monopoly prices from.

    No, the REAL reason for the encryption is to have a mechanism to
hang the regional restrictions on, and the REAL reason for the
regional encoding is price-fixing. In Europe and many other parts of
the world, the monopolies have gotten legislatures to rubber-stamp
laws against "unfair competition" which allow price-fixing schemes
like the ones the media monopolies are being sued for carrying out in
the United States. Back in the 1970s, the U.S. Supreme Court declared
such schemes illegal, and the whole point of encoding is to prevent
consumers in other countries from taking advantage of American prices
and forcing them to pay through the nose for DVD's.

    DVD prices are clearly being fixed by the way. Brand-new
pre-recorded video tapes sell for much, much less than DVD's, even
though they are harder to manufacture and the components are more
expensive than those in DVD's which basically, from a manufacturing
point of view, are just fancier CD's with a couple of layers of foil
on the inside instead of just one. The point is store-bought CDs and
DVD's are stamped, whereas anything with tape has to be recorded,
which is a time-consuming operation.

    And you will notice that, minute for minute, recordable CD blanks
are cheaper than audio tape.

    An interesting side to this will be to see how the bourgeois news
media reports on it. The same media monopolies that control the music
industry control also many leading news outlets (Time Warner being the
outstanding example). But even a locally-owned home-town newspaper
will think long and hard before going after these outfits because so
much of their advertising comes from records, movies, TV, cable and
consumer entertainment electronics. And as the CD case shows, the
retail outlets that nominally contract the advertising and controlled
and funded by the monopolies.


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