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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