971 0070

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
Time Warner, Inc.

Docket No. C-3972

DECISION AND ORDER

The Federal Trade Commission having initiated an investigation of certain acts and practices of Respondent, Time Warner Inc., 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, and having duly considered the comments filed thereafter by interested persons pursuant to  2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and issues the following Order:

  1. Respondent Time Warner Inc. is a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 75 Rockefeller Plaza, New York, New York. Warner Music Group Inc. is a wholly owned subsidiary of Time Warner Inc., and is a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 75 Rockefeller Plaza, New York, New York. Warner-Elektra-Atlantic Corporation is a wholly owned subsidiary of Time Warner, and is a corporation organized and existing under the laws of the State of New York with its principal place of business at 111 N. Hollywood Way, Burbank, California.
  2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the Respondent, and the proceeding is in the public interest.

ORDER

I.

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

  1. "Time Warner" or "Respondent" means Time Warner Inc., its directors, officers, employees, agents, representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled by Time Warner, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.
  2. "WMG" means Warner Music Group Inc., its directors, officers, employees, agents, representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled by WMG, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.
  3. "WEA" means Warner-Elektra-Atlantic Corporation, its directors, officers, employees, agents, representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled by WEA, and the respective directors, officers, employees, agents, representatives, successors, and assigns of each.
  4. "Commission" means the Federal Trade Commission.
  5. "Record Clubs" means the divisions of The Columbia House Company and BMG Music Service that operate as club-based direct marketers of prerecorded music, and manufacture or have manufactured for them product pursuant to a club license.
  6. "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). "Product" does not include prerecorded music in physical or other electronic format manufactured or distributed by or for Record Clubs pursuant to Record Club licenses.
  7. "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, but excluding Record Producers.
  8. "Record Producer" means any person, corporation or entity that in the course of its business produces sound recordings for recording artists and manufactures Product from such sound recordings.
  9. "Cooperative Advertising or Other Promotional Funds" means any payment, rebate, charge-back or other consideration provided to a Dealer by WMG in exchange for any type of advertising, promotion or marketing efforts by that Dealer on behalf of WMG. This term also includes advertising, promotion, or marketing efforts by WMG 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 WMG, 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.
  10. "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.
  11. "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.
  12. "Advertised or Promoted" means:
(1) any form of advertising, promotion, or marketing efforts by WMG 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, WMG, directly, indirectly, or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any WMG 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 WMG Product is Advertised or Promoted.

III.

It is further ordered that WMG, directly, indirectly, or through any corporation, subsidiary, division or other device, in connection with the offering for sale, sale or distribution of any WMG 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:

  1. 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 WMG Product is offered for sale or sold;
  2. 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 WMG Product in any In-Store Promotion or Media Advertising where the Dealer does not seek any contribution from WMG for the cost of said Media Advertising or In-Store Promotion;
  3. 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 WMG Product in any In-Store Promotion or Media Advertising if WMG's contribution exceeds 100% of the Dealer's actual costs of said Media Advertising or In-Store Promotion;
  4. Agree with any Dealer to control or maintain the resale price at which the Dealer may offer for sale or sell any WMG Product;
  5. For a period of five (5) years, announce resale or minimum advertised prices of WMG Product and unilaterally terminate those who fail to comply because of such failure. Notwithstanding the foregoing, nothing herein shall prohibit WMG from announcing suggested list prices for WMG Product.

IV.

Nothing herein shall prohibit WMG from providing Cooperative Advertising or Other Promotional Funds on the condition that such funds are passed through in whole or in part to the consumer (hereinafter "Pass-Through Funds"). WMG shall maintain records that specifically identify by title or collection of titles the amount of Pass-Through Funds provided to each Dealer and the date said amount was provided. Whenever WMG provides Pass-Through Funds to a Dealer, WMG shall specifically notify the Dealer in writing either that these funds are intended to be passed through to the ultimate consumer in whole, or that the Dealer may determine what portion of the funds are to be passed through, provided that some portion of the funds must be passed through to the ultimate consumer. The documents described in this Paragraph IV shall be provided to the Commission upon request.

V.

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

  1. WMG shall amend all policy manuals applicable to the distribution of WMG Product to state affirmatively that WMG does not maintain or enforce any plan, practice or policy of the type prohibited in Paragraph II of this Order, and not otherwise permitted by Paragraph IV of this Order.
  2. In each published full catalogue or published full price list in which WMG states suggested list prices or codes indicative of such prices, WMG 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, and not otherwise permitted by Paragraph IV of this Order.
The documents described in this Paragraph V shall be provided to the Commission upon request.

VI.

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

  1. All of its directors, officers, distributors, agents and sales representatives in the United States, and
  2. All Dealers to which WEA sells directly and that are engaged in the sale of any WMG Product in or into the United States of America.

VII.

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

  1. Each new director, officer, distributor, agent, and sales representative of WMG in the United States, and
  2. Each new Dealer to which WEA sells directly which is engaged in the sale of any WMG Product in or into the United States of America,
within thirty (30) days of the commencement of such person's employment or affiliation with WMG or WEA.

VIII.

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 Time Warner require, Time Warner shall file with the Commission a verified written report setting forth in detail the manner and form in which Time Warner has complied and is complying with this Order.

IX.

It is further ordered that this Order shall terminate on August 30, 2020.

By the Commission.
Donald S. Clark
Secretary
ISSUED: August 30, 2000

EXHIBIT A

[COMPANY LETTERHEAD]

Dear [Recipient]:

WEA announces several important changes in policy. All of these changes will be reflected in the new Policy Manual.

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

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

Concurrence:

__________________________
William L. Lanning, Esq.
Federal Trade Commission
Bureau of Competition