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The Music Industry: A Monopoly?
The Federal Trade Commission (FTC) and the Justice Department are conducting two separate investigations into whether the music industry has engaged in monopolistic practices.
The FTC wants to determine whether the music industry has illegally discouraged the discounting of CDs. The normal industry practice is to print a "minimum advertised price" on CDs. When a retailer dares to offer CDs at a price lower than the stated minimum, the firm is penalized. Although retailers typically receive cash payments intended for cooperative advertising, those who discount CDs are punished by the industry—they do not receive such assistance.
In addition, the FTC is closely looking at whether MTV Networks, owned by Viacom Inc., has too much power within the industry. The hugely profitable MTV reaches 72.6 million subscribers. Rivals such as Black Entertainment Television and MuchMusic reach far fewer homes.
One specific practice under investigation is the charge that Viacom demands that music companies give its MTV, M2, and VH1 channels the exclusive broadcast rights to some popular music videos for up to a month. Thus, new videos by popular artists can often only be seen on MTV. And the artists want to be on MTV or VH1. Record executives say that getting a video on MTV can determine whether an album will be a success.
Of course, this makes it difficult for anyone else to enter the market and compete with MTV. Other channels lose viewers because they can’t get the "latest" from top artists. With less viewers, they receive less revenues for commercials—and profits plummet.
Another indication that MTV may have too much power is the allegation that Viacom forces bundling with other stations like Nickelodeon when cable operators want to offer MTV. MTV may have enough clout to force cable companies to accept stations they would otherwise reject.
The Justice Department began looking into MTV’s practices in television when MTV bought a rival channel, Liberty Digital. They not only eliminated one of their few rivals, they also gained Web-links to popular locations. MTV engaged in an old tactic: To get rid of the competition, simply buy them. Do all these practices signal that MTV is a monopoly?
Viacom representatives have responded that "there is no violation of antitrust laws." They claim the market is highly competitive and that their practices are both common and legal. Further, they argue that they compete with many different types of entertainment for the 12-34-year-old market. While various government agencies ponder the question, the increasingly widespread use of the Internet may be the key to eroding MTV’s market power.
More and more companies—some homegrown and others sophisticated -- are offering on-line videos and tunes on the Internet. Those who log on to these sites can listen to music, watch videos, and order, right off the Net. Music industry executives want to keep it this way. They fear that MTV will use its TV clout to snuff out these new companies. Burned by the power of MTV, Time Warner’s Music Group plans to offer licenses to many small companies, allowing them to show their videos via the World Wide Web. The dominance of MTV on television has depressed license fees. Music companies are able to charge these new companies more—and they want to keep it this way.
One company that appears ready to take on MTV via the Net is Launch Media, which offers music news, behind-the-scene shots, and videos. It currently offers 1300 videos on demand, and is increasing that number daily.
MTV is not worried. Executives argue that the importance of having videos shown on television’s MTV will insure that the major artists will continue to "partner" with the station. Plus, MTV has recently relaunched its own Web site, capitalizing on its name recognition. Could this be the beginning of another fight to the finish?
DISCUSSION QUESTIONS
1. Describe how the policy of penalizing retailers who discount CDs is a form of price-fixing, an illegal practice.
2. What monopolistic practices does Viacom’s MTV Networks engage in?
3. Name some of the barriers to entry that a new TV video channel would face.
4. Describe how MTV maintains high profits.
5. Explain how the description of the market can determine whether a specific company has a monopoly or not. Why does Viacom define its market as the entertainment market for young people?
6. Describe how the music video industry would look if it were purely competitive.
7. Name some ways the government could increase competition.
8. A monopoly is when there is one seller in a market. A monopsonist is when there is one buyer in a market. Explain how MTV is both. |
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