DOJ investigating Apple for iTunes related antitrust issues

Tue, May 25, 2010

Legal, News

Apple is increasingly finding itself in the crosshairs of Federal Regulators who are now investigating possible antitrust issues rooted in Apple allegedly leveraging the popularity of iTunes to prevent Amazon from offering songs as exclusive pre-release downloads.

The New York Times is reporting that the Justice Department is currently examining Apple’s business practices as they relate to the sale of online music, and have been busy interviewing record labels and an assortment of online music retailers.

The root of the investigation stems from a recent Billboard report which detailed how Apple urged record labels not to participate in Amazon’s “Daily Deal” music promotion under the threat of a reduced presence and promotion for artists on iTunes.

In case you’re unfamiliar, Amazon’s “Daily Deal” is a promotion where Amazon will offer an album or song for download 1 day before it hits iTunes and record stores. Albums and songs falling under the “Daily Deal” umbrella are heavily advertised and naturally help attract away customers who would ordinarily purchase their music from Apple or from more traditional brick and mortar stores.

Apple, not surprisingly, didn’t take too kindly to Amazon’s music initiative, and according to Billboard, told record labels that it was in their own best interest not to participate. Now the reason why this attracted the attention of the Justice Department is because the popularity of iTunes continues to increase. In 2009, for example, iTunes was far and away the top music retailer in the US, accounting for 26.65% of all music sales. Amazon, meanwhile, checked in as the 5th most popular retailer with a 7% share. The numbers are even more stark when you look solely at online music sales where Apple’s iTunes commands 69% of the market.

As iTunes grows, the need for record labels to maintain a congenial disposition with Apple becomes that much more important. A prominent spot on the iTunes landing page can do wonders to help give a new song or album a strong push out of the gate. Apple allegedly abusing that power in an anti-competitive manner has naturally attracted the attention of federal regulators.

With the investigation into Apple’s practices still in the preliminary stages, it’s still too early to tell how thoroughly regulators will examine the matter. But the underlying lesson here is that Apple is no longer the underdog in all facets of tech. As the saying goes, with great power comes great responsibility, and for a company that doesn’t ordinarily enjoy a commanding marketshare in anything (MP3 players aside), Apple needs to be keenly aware of how its ordinary business practices can easily run afoul of antitrust laws. While there’s nothing wrong with being a monopoly, abusing the power inherent with that position can have serious consequences.


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