UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

BMG Music, a partnership, d.b.a. "BMG Entertainment"

File No. 971-0070

AGREEMENT CONTAINING CONSENT ORDER

The Federal Trade Commission ("Commission"), having initiated an investigation of certain acts and practices of BMG Music, and it now appearing that BMG Music, hereinafter sometimes referred to as "Proposed Respondent" is willing to enter into this Agreement Containing Consent Order ("Consent Agreement") to cease and desist from these practices and providing for other relief;

IT IS HEREBY AGREED by and between Proposed Respondent, by its duly authorized officers and attorneys, and counsel for the Commission that:

1. Proposed Respondent, BMG Music, is a partnership organized and existing under the laws of the State of New York with its principal place of business at 1540 Broadway, New York, New York. The partnership is comprised of Bertlesmann Music Group, Inc. and Ariola Eurodisc, Inc., both of which are Delaware corporations. The BMG Music partnership does business under the trade name "BMG Entertainment" among others. BMG Distribution is a unit of BMG Music.
2. Proposed Respondent admits all the jurisdictional facts set forth in the draft of Complaint here attached.
3. Proposed Respondent waives:

a. any further procedural steps;

b. the requirement that the Commission's Decision contain a statement of findings of fact and conclusions of law;

c. all rights to seek judicial review or otherwise to challenge or contest the validity of the Decision and Order entered pursuant to this Consent Agreement; and

d. any claim under the Equal Access to Justice Act.

4. Proposed Respondent shall submit an initial compliance report within sixty (60) days of the date it signs this Consent Agreement, pursuant to Commission Rule 2.33, 16 C.F.R. § 2.33, signed by the Proposed Respondent setting forth in detail the manner in which the Proposed Respondent has to date complied or has prepared to comply, and will comply with the Decision and Order. Such reports will not become part of the public record unless and until the accompanying Consent Agreement and Decision and Order are accepted by the Commission for public comment.
5. This Consent Agreement shall not become part of the public record of the proceeding unless and until it is accepted by the Commission. If this Consent Agreement is accepted by the Commission it, together with the draft of Complaint contemplated thereby, will be placed on the public record for a period of thirty (30) days and information in respect thereto publicly released. The Commission thereafter may either withdraw its acceptance of this Consent Agreement and so notify Proposed Respondent, in which event it will take such action as it may consider appropriate, or issue and serve its Complaint (in such form as the circumstances may require) and Decision and Order, in disposition of the proceeding.
6. This Consent Agreement is for settlement purposes only and does not constitute an admission by Proposed Respondent that the law has been violated as alleged in the draft of Complaint here attached, or that the facts as alleged in the draft Complaint, other than jurisdictional facts, are true.
7. This Consent Agreement contemplates that, if it is accepted by the Commission, and if such acceptance is not subsequently withdrawn by the Commission pursuant to the provisions of Commission Rule 2.34, 16 C.F.R. § 2.34, the Commission may, without further notice to Proposed Respondent, (1) issue its Complaint corresponding in form and substance with the draft of Complaint here attached and its decision containing the following Decision and Order in disposition of the proceeding, and (2) make information public in respect thereto. When final, the Decision and Order shall have the same force and effect, and may be altered, modified or set aside in the same manner and within the same time provided by statute for other orders. The Decision and Order shall become final upon service. Delivery of the Complaint and Decision and Order to Proposed Respondent's Counsel by any means specified in Commission Rule 4.4(a), 16 C.F.R. § 4.14.(a), shall constitute service. Proposed Respondent waives any right it may have to any other manner of service. The Complaint may be used in construing the terms of the Decision and Order, and no agreement, understanding, representation, or interpretation not contained in the Decision and Order or the Consent Agreement may be used to vary or contradict the terms of the Decision and Order.
8. By signing this Consent Agreement, Proposed Respondent represents and warrants that it can accomplish the full relief contemplated by this Consent Agreement, and that all parents, subsidiaries, affiliates, and successors necessary to effectuate the full relief contemplated by this Consent Agreement are parties to the Consent Agreement and are bound thereby as if they had signed this Consent Agreement and were made parties to this proceeding and to the Decision and Order.
9. Proposed Respondent has read the Proposed Complaint and Decision and Order contemplated hereby. Proposed Respondent understands that once the Decision and Order has been issued, it will be required to file one or more compliance reports showing that it has fully complied with the Decision and Order. Proposed Respondent further understands that it may be liable for civil penalties in the amount provided by law for each violation of the Decision and Order after the Decision and Order becomes final.

Signed this ____ day of ______________, 2000

BMG MUSIC, a partnership

By: _______________________
LaVerne Evans
Senior Vice President &
General Counsel
BMG Entertainment

________________________
Robert E. Bloch, Esq.
Mayer, Brown & Platt
Counsel for BMG Music

FEDERAL TRADE COMMISSION

By: _______________________
William L. Lanning
Karin F. Richards
James W. Frost
Attorneys
Bureau of Competition

Approved:

_____________________
Veronica G. Kayne
Assistant Director
Bureau of Competition

_____________________
Michael E. Antalics
Deputy Director
Bureau of Competition

_____________________
Richard G. Parker
Director
Bureau of Competition

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS:

Robert Pitofsky, Chairman

Sheila F. Anthony

Mozelle W. Thompson

Orson Swindle

Thomas B. Leary

In the Matter of BMG Music, a partnership, d.b.a. "BMG Entertainment."

Docket No. C-

DECISION AND ORDER

The Federal Trade Commission having initiated an investigation of certain acts and practices of Respondent BMG Music and Respondent having been furnished thereafter with a copy of the draft of Complaint that the Bureau of Competition presented to the Commission for its consideration and which, if issued, would charge Respondent with violations of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45; and

Respondent, its attorneys, and counsel for the Commission having thereafter executed an Agreement Containing Consent Order ("Consent Agreement"), containing an admission by Respondent of all the jurisdictional facts set forth in the aforesaid draft of Complaint, a statement that the signing of said Consent Agreement is for settlement purposes only and does not constitute an admission by Respondent that the law has been violated as alleged in such Complaint, or that the facts as alleged in such Complaint, other than jurisdictional facts, are true, and waivers and other provisions as required by the Commission's Rules; and

The Commission having thereafter considered the matter and having determined that it had reason to believe that Respondent has violated said Act, and that a Complaint should issue stating its charges in that respect, and having accepted the executed Consent Agreement and placed such Consent Agreement on the public record for a period of thirty (30) days for the receipt and consideration of public comments, now in further conformity with the procedure described in Commission Rule 2.34, 16 C.F.R. § 2.34, the Commission hereby issues its complaint, makes the following jurisdictional findings and issues the following Order:

1. Proposed Respondent BMG Music is a partnership organized and existing under the laws of the State of New York with its principal place of business at 1540 Broadway, New York, New York. The partnership is comprised of Bertlesmann Music Group, Inc. and Ariola Eurodisc, Inc., both of which are Delaware corporations. BMG Music does business under the trade name BMG Entertainment among others. BMG Distribution is a unit of BMG Music.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the Respondents, and the proceeding is in the public interest.

ORDER

I.

It is ordered that, as used in this Order, the following definitions shall apply:

A. "BMG Music" or "Respondent" means BMG Music, its directors, officers, employees, agents, representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled by BMG Music, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.

 

B. "Commission" means the Federal Trade Commission.

 

C. "Product" means prerecorded music in physical or electronic format that is offered for sale or sold in the United States, including, but not limited to, compact discs ("CDs"), audio DVDs, audio cassettes, albums and digital audio files (i.e., digital files which are delivered to the consumer electronically, to be stored on the consumer's hard drive or other storage device).

 

D. "Dealer" means any person, corporation, or entity that in the course of its business offers for sale or sells any Product in or into the United States, including, but not limited to, wholesale distributors, retail establishments, and Internet retail sites.

 

E. "Cooperative Advertising or Other Promotional Funds" means any payment, rebate, charge-back or other consideration provided to a Dealer by BMG Music in exchange for any type of advertising, promotion or marketing efforts by that Dealer on behalf of BMG Music. This term also includes advertising, promotion, or marketing efforts by BMG Music on behalf of one or more identified Dealers. Examples of cooperative advertising include, but are not limited to, free goods provided to a Dealer by BMG Music, and payments for newspaper advertisements, radio and television advertisements, internet banner advertisements, posters and signs within a Dealer's retail stores, pricing or positioning of Products within a Dealer's retail stores, and point-of-purchase merchandising.

 

F. "Media Advertising" means any promotional effort by a Dealer outside of the Dealer's physical location or Dealer-controlled internet site, including but not limited to, print, radio, billboards, or television.

 

G. "In-Store Promotion" means any promotional effort conducted in or on the physical premises of a Dealer or a Dealer-controlled internet site, including but not limited to, signs, bin cards, end caps, hit walls, listening posts, internet banner advertisements, and promotional stickers.

 

H. "Advertised or Promoted" means:

(1) any form of advertising, promotion, or marketing efforts by BMG Music on behalf of one or more of its Dealers;

 

(2) any form of Media Advertising efforts including, but not limited to, print, radio, billboard, or television; and

 

(3) any form of In-Store Promotion efforts including, but not limited to, signs, bin cards, end caps, hit walls, listening posts, internet banner advertisements and promotional stickers.

II.

It is further ordered that for a period of seven (7) years, BMG Music, directly, indirectly, or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any BMG Music Product in or into the United States of America in or affecting "commerce," as defined by the Federal Trade Commission Act, shall cease and desist from directly or indirectly adopting, maintaining, enforcing or threatening to enforce any policy, practice or plan which makes the receipt of any Cooperative Advertising or Other Promotional Funds contingent upon the price or price level at which any BMG Music Product is Advertised or Promoted.

III.

It is further ordered that BMG Music, directly, indirectly, or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any BMG Music Product in or into the United States of America in or affecting "commerce," as defined by the Federal Trade Commission Act, shall not directly or indirectly:

A. Adopt, maintain, enforce or threaten to enforce any policy, practice or plan which makes the receipt of any Cooperative Advertising or Other Promotional Funds contingent upon the price at which any BMG Music Product is offered for sale or sold;

 

B. Adopt, maintain, enforce or threaten to enforce any policy, practice or plan which makes the receipt of any Cooperative Advertising or Other Promotional Funds contingent upon the price or price level of the BMG Music Product in any In-Store Promotion or Media Advertising where the Dealer does not seek any contribution from BMG Music for the cost of said Media Advertising or In-Store Promotion;

 

C. Adopt, maintain, enforce or threaten to enforce any policy, practice or plan which makes the receipt of any Cooperative Advertising or Other Promotional Funds contingent upon the price or price level of the BMG Music Product in any In-Store Promotion or Media Advertising if BMG Music's contribution exceeds 100% of the Dealer's actual costs of said Media Advertising or In-Store Promotion;

 

D. Agree with any Dealer to control or maintain the resale price at which the Dealer may offer for sale or sell any BMG Music Product;

 

E. For a period of five (5) years, announce resale or minimum advertised prices of BMG

Music Product and unilaterally terminate those who fail to comply because of such failure. Notwithstanding the foregoing, nothing herein shall prohibit BMG Music from announcing suggested list prices for BMG Music Product.

IV.

It is further ordered that for a period of seven (7) years:

A. BMG Music shall amend all Advertising Policy statements applicable to the distribution of BMG Music Product to state affirmatively that BMG Music does not maintain or enforce any plan, practice or policy of the type prohibited in Paragraph II of this Order.

 

B. In each published full catalogue or published full price list in which BMG Music states suggested list prices or codes indicative of such prices, BMG Music shall state affirmatively that it does not maintain or enforce any plan, practice or policy of the type prohibited in Paragraph II of this Order.

The documents described in this Paragraph IV shall be provided to the Commission upon request.

V.

It is further ordered that within 10 days after this Order becomes final, BMG Music shall mail by first class mail a letter containing the language attached as Exhibit A to:

A. All officers, employees and sales representatives of BMG Distribution, a unit of BMG Music, and sales representatives of the labels for which BMG Distribution distributes Product in the United States, and

 

B. All Dealers to which BMG Music sells directly and that are engaged in the sale of any BMG Music Product in the United States of America.

VI.

It is further ordered that for a period of seven (7) years, BMG Music shall mail by first class mail a letter containing the language attached as Exhibit A to:

A. Each new officer, employee and sales representative of BMG Distribution, a unit of BMG Music, and each new sales representative of the labels for which BMG Distribution distributes Product in the United States, and

 

B. Each new Dealer to which BMG Music sells directly which is engaged in the sale of any BMG Music Product in the United States of America,

within thirty (30) days of the commencement of such person's employment or affiliation with BMG Music.

VII.

It is further ordered that annually for five (5) years on the anniversary of the date this Order becomes final, and at such other times as the Commission may by written notice to BMG Music require, BMG Music shall file with the Commission a verified written report setting forth in detail the manner and form in which BMG Music has complied and is complying with this Order.

VIII.

It is further ordered that this Order shall terminate twenty (20) years after the date on which this Order becomes final.

By the Commission.

Donald S. Clark
Secretary

EXHIBIT A

[COMPANY LETTERHEAD]

Dear [Recipient]:

BMG announces several important changes in policy. All of these changes will be reflected in new Advertising Policy statements.

BMG has dropped its Minimum Advertised Price ("MAP") policy effective ______, 2000. Cooperative advertising and other promotional funds will not be conditioned upon the price at which BMG product is advertised or promoted. As many of you know, the Federal Trade Commission has conducted an investigation into BMG's MAP policies. To end the investigation expeditiously and to avoid disruption to the conduct of its business, BMG has voluntarily agreed, without admitting any violation of the law, to the entry of a Consent Agreement relating to MAP and other related matters.

BMG's customers can advertise and promote our products at any price they choose. BMG will not withhold cooperative advertising or other promotional funds on the basis of the price at which product is advertised in the media or promoted in your stores. BMG may announce suggested retail prices, but retailers remain free to sell and advertise BMG product at any price they choose.