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FTC Examines MI Pro Audio Retail - ProSoundNetwork.com

FTC Examines MI Pro Audio Retail

By Clive Young New York (April 11, 2007)--On March 12, the Federal Trade Commission (FTC) 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, and more by today, April 11; at press time, many of those entities were expected to request extensions.
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By Clive Young

New York (April 11, 2007)--On March 12, the Federal Trade Commission (FTC) 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, and more by today, April 11; at press time, many of those entities were expected to request extensions.

Because of the nature of the FTC's action, verifying what entities are involved is difficult and the FTC's Office of Public Affairs had not returned numerous calls at press time. 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 mum for now on its intentions, which many believe indicates the subpoenas are a fishing expedition of sorts. With the blanket of silence as to what the FTC is looking for and, just as importantly, what spurred the request for sales data, speculation is running rampant within the industry--but only behind closed doors. No companies contacted for this article would say on the record whether they have been subpoenaed, but no companies would state that they had not been subpoenaed, for fear of raising the FTC's interest.

Speaking on condition of anonymity, a high-ranking executive at one pro audio manufacturer with numerous MI product lines, opined, "Companies get around price fixing with MAP. The manufacturers don't tell anyone what to sell it for, because that's illegal; they just tell 'em what to advertise it for, because that's perfectly legal. Retailers who sell at the MAP get rebates because 'kickbacks' are illegal but rebates are not, and that's how they get everyone to sell at the same price.

"So here's where the problem comes in: Let's say I'm a small retailer and I don't want a big corporation to tell me what to sell a product for. I can't afford lawyers to go after these companies, so I'll get the federal government to go after them. I call the right people at the FTC and create a big stink, because I feel that the big guys are putting little mom and pop places like mine out of business."

Ironically, those "little mom and pop places" are theorizing that the major MI retailers are behind the FTC probe. On message boards run by the Federation of United Retail Music Merchants, a fledgling trade organization for independent MI retailers, poster Imusic commented, "This is the big guys crying foul, [saying] 'How can a manufacturer tell us that we can't promote a product as cheap as we want? If allowed to promote a product as cheap as we want, the consumer wins!'....If they can get the government to agree that it will save the consumer money and they can get MAP to go away, they then start destroying every product line" [by pricing it too low for mom 'n' pops to compete].

Weighing heavily on minds across the industry is the fallout of previous FTC rulings, such as when it abolished MAP pricing on CDs in the early 2000s; big box retailers like Wal-Mart and Best Buy began pricing hit albums as loss leaders in order to draw consumers to their stores, and local CD shops have been shuttering in droves ever since.

One noted industry pundit--who also declined to be named--had a different take on the situation, noting, "What's really a shame is that organizations like NAMM will have to take funding from things like education and training. What a shame that our industry is going to get refocused on tapping its resources and not being able to use them for good; instead we're going to make a bunch of lawyers rich. Manufacturers hit by this will wind up taking thousands of people hours out of what they could be doing in the marketplace and doing this instead.
"And things like this don't go away. The FTC doesn't change its mind and just drop things. This is gonna get drawn out for years."

FTC
www.ftc.gov