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UK Launches Competition Inquiry Into CD Market

By Sudip Kar-Gupta

LONDON (Reuters) - Britain launched a competition inquiry on Friday into the country's compact disc market, joining European regulators in raising suspicions that major record companies overcharge music lovers.

The Office of Fair Trading will investigate Universal Music UK, EMI Records UK & Ireland, BMG International UK & Ireland, Warner Music UK, Virgin Records, independent distributor Pinnacle Records and Sony.

It said there were reasonable grounds to suspect the companies had acted together to stifle competition by restricting CD imports into Britain from other EU states, where prices generally undercut Britain.

The world's five biggest music companies -- EMI, BMG, Warner Music, Sony and Universal -- already face scrutiny from the European Commission which said last month it was investigating whether they colluded with retailers over CD prices.

German music fans generally pay about $16.49 for a newly-released top 10 CD, compared to a UK average of about $21.67. Parisians, meanwhile, can expect to pay around $16.86.

The investigations come at a sensitive time for EMI and Bertelsmann, who are trying to merge their music businesses after EU opposition sank earlier EMI plans to link up with Warner Music.

"The inquiry will consider whether the way in which the record companies have responded to imports of cheaper CDs from elsewhere in Europe into the UK amounts to a breach of the Competition Act 1998," the OFT said in a statement.

It can penalize companies found guilty of breaching the act by imposing penalties of up to 10 percent of UK turnover for every year of the infringement for a maximum of three years.

"Blatant Abuse"

The Consumers' Association, which represents consumers' interests, welcomed the inquiry and accused the music industry of having "blatantly and abusively overcharged UK consumers."

"UK consumers have paid far too much for far too long for CDs and we have never accepted that there is a good reason for this," it added in a statement.

The OFT has asked the companies, along with retailers and wholesalers, to hand over information to investigators by February 23. The inquiry is expected to last six months.

An EMI spokeswoman confirmed the group had received a request for information from the OFT, but declined to comment further.

Britain has already investigated the CD market. Its Monopolies & Mergers Commission investigated the sector in 1994 but found that prices for CDs in the UK were acceptable.

Both the British and European Commission inquiries follow an investigation by the U.S. Federal Trade Commission (FTC) last year.

The FTC had investigated EMI, BMG, Warner Music, Sony and Universal over colluding with retailers. Following the inquiry, all five firms agreed to stop enforcing minimum retail prices on CDs, which the FTC said had led to inflated prices.

Several British retail sectors have come under the scrutiny of competition watchdogs in recent years, including the car industry.

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