May 26, 2010 / 10:56 PM / in 7 years

U.S. probes Apple digital music dominance

<p>A customer (2nd L) discusses an Apple product with a shop assistant (C) while customers shop at an Apple store in Tokyo in this August 25, 2006 file photo.Kiyoshi Ota/Files</p>

NEW YORK (Reuters) - The U.S. Justice Department is making preliminary inquiries into whether Apple Inc unfairly dominates the digital music market, according to three people whose companies have been contacted by regulators.

They said the Justice Department contacted some music labels and digital music providers earlier this month.

DoJ staff have mostly asked the companies broad questions about the nature of the digital music market, according to two of the three sources, who all spoke on condition of anonymity as the talks were confidential.

"It was a very preliminary conversation," said one person.

Given Apple's leading market share the broad questions inevitably involved iTunes, these people said.

Billboard magazine reported on March 6 that Apple had used its market dominance to prevent labels from agreeing to let Amazon.com exclusively debut new songs.

Spokespersons for Apple, Amazon and the Justice Department declined to comment.

In the United States, Apple's iTunes Music Store is the largest music retailer and largest digital music store with a market share of about 70 percent. Amazon is the No. 2 digital music retailer with a less than 10 percent market share.

Apple and the major music companies -- Vivendi's Universal Music Group, Sony Music Entertainment, Warner Music Group and EMI Group -- have had a love-hate relationship in recent years.

On the one hand, Apple and its chief executive Steve Jobs are widely acknowledged for having given the music industry a life-line with the launch of iTunes in 2003, when digital music services were struggling to get traction.

But iTunes' subsequent dominance, combined with the huge popularity of its devices like the iPod and iPhone, have led to clashes between label executives and Jobs over a range of issues, from copy-protection software to variable pricing.

Resentment toward Apple in the music industry has grown as their fortunes have diverged in recent years.

The iPod digital music player has helped to drive Apple's resurgence this decade, even as global music sales have shrunk from $26.5 billion in 2000 to $17 billion last year.

Apple ended Wednesday with a market value of about $222 billion, surpassing Microsoft Corp as the world's largest technology company, according to Reuters data.

Evan Stewart of the law firm Zuckerman Spaeder LLP foresees many antitrust battles in the nascent digital market as companies establish themselves in a new space.

"They are trying to gain control in parts of the economy that are growing rapidly and people don't understand them very well," he said.

Dominant companies in one part of the economy trying to move into another area raises "legitimate areas of inquiry and concern," he added.

The Justice Department inquiry was first reported by the New York Times on Tuesday, citing people briefed on the conversations.

Reporting by Yinka Adegoke; Additional reporting by Diane Bartz in Washington D.C. and Alexandria Sage in San Francisco; Editing by Richard Chang

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