FTC Investigates Music Gear Industry Price Fixing
The Federal Trade Commission (FTC) recently issued subpoenas to a number of entities related to the Musical Instrument (MI) retailing industry, including MI/pro audio manufacturers, retailers and trade organizations. The move is an apparent exploration into the use of Minimum Advertised Pricing (MAP) to enact price fixing within the world of MI retail. Reportedly all those subpoenaed were required to provide more than seven years’ worth of pertinent data on sales, MAP policies, advertising and coop advertising.
Currently, companies get around price fixing with Minimum Advertised Price (MAP). The manufacturers don’t tell anyone what to sell it for, because that’s essentially illegal, so they indicate a price point to advertise it for, which is legal. Retailers who sell do sell the product at the MAP get a “kickback” that’s classified as a “rebate.”
Because of the nature of the FTC’s action, verifying which concerns have been subpoened has been difficult to determine. While the National Association of Music Merchants (NAMM) noted on its website that it has been subpoenaed, no other entities have openly announced having been contacted from the FTC, although music retail trade magazine MMR claims that various smaller trade organizations have been contacted, including the Guitar & Accessories Marketing Association; the International Association of Electronic Keyboard Manufacturers; the National Association of School Music Dealers; the Percussion Marketing Council; and others.
Preliminary inquiries would appear to indicate that no companies that are strictly pro audio manufacturers have been called upon by the FTC, and that the only pro audio manufacturers involved are in fact divisions of much larger companies that also build musical instruments. Adding to the aura of mystery surrounding the subpoenas is the fact that no charges have been filed by the FTC, and the government agency is keeping silent for now on its intentions, which many insiders believe is a fishing expedition of sorts. However, speculation is running rampant within the industry.
Who tipped the FTC off?
No comes the fun part…why did the FTC decide to investigate? Did they take it all upon themselves to investigate? Is this just an “exploratory mission?” Or… Is one side of the industry playing off the other?
Maybe if you’re a small Mom ‘n’ Pop music retailer, you don’t want a Guitar Center or other big company telling you what to sell a product for…so you tip off the FTC that there’s price fixing to keep the big fellas in check.
If you’re a big retailer your opinion may be…how can a manufacturer tell us that we can’t promote their product for the price we want?! The musician wins if we sell the product for as low as we can, so why don’t we get the government involved to stick up for the consumer.
One thing is for sure, when the FTC gets involved with the Music industry, the small retailer loses and loses big. Just review what happened when the government eliminated MAP pricing on CDs in the early 2000s…mega-retailers like Wal-Mart and Best Buy began using CDs as loss leaders in order to suck customers into their stores (after bullying the majors on bulk price points), and the Mom ‘n’ Pops couldn’t complete. This was essentially the beginning of the end for small CD stores who have been going out of business ever since.