The probe, which is in a preliminary stage, is looking into possible anticompetitive problems posed by the joint ventures, lawyers close to the case said. The government also is expected to examine the major record companies' use of copyright rules and licensing practices to control online distribution of their music, these people said.
The rival joint ventures, pressplay and MusicNet, have said they will begin operating in the fall, and each is aligned with one of the two warring camps in the online world. Pressplay is working with Microsoft and is jointly owned by Sony and Vivendi Universal. MusicNet is based on RealNetworks technology and is owned by AOL Time Warner, EMI Group and Bertelsmann and RealNetworks.
The ventures are the music labels' first big move into digital distribution, a technology that one day could reshape the industry. The labels have been criticized for moving slowly into online music and failing to license music to smaller competitors; they respond that they have been trying to work out how to protect -- and be paid for -- online music and to negotiate terms with music publishers.
Both joint ventures declined to comment, as did all five major record labels.
One lawyer familiar with the Justice Department investigation said that it isn't unusual for joint ventures among competitors to attract antitrust scrutiny and that many such ventures have been permitted to continue operating.
MusicNet and pressplay are already under investigation by European antitrust enforcers, who began their inquiry in June. The US probe is only the latest in a string of antitrust issues that have arisen in recent years as the music industry has consolidated.
In recent congressional hearings, Web companies and other online-music distributors complained about the slow pace of labels' efforts to license music for their services. In Senate Judiciary Committee testimony in April, for instance, a Tower Records executive testified that "the deals the record companies seem most interested in pursuing are with each other, or with companies that they all buy a piece of -- like MusicNet."
Mike Farrace, a senior vice president at Tower Records, a unit of closely held MTS, complained to lawmakers that the labels' new services could "ultimately steal our business."
The two ventures expect to charge consumers a monthly fee to get access to "streamed" music -- which consumers listen to online, but can't copy -- and downloaded, or copied, songs from the labels' catalogues. Both have said that their licenses from their label backers are nonexclusive and that they hope to cross-license so each service will have a broad range of music.
MusicNet and pressplay also have announced several online partners. MusicNet will be available through AOL and RealNetworks, as well as Napster, though the status of the music-swapping company remains uncertain due to its legal struggles. Pressplay has announced affiliate relationships with Web portal Yahoo, as well as Microsoft's MSN service and MP3.com, which is being bought by Vivendi Universal.
But the two ventures have different business models. MusicNet will operate similarly to a wholesaler, licensing its service and songs to its online partners. The Web firms will have some flexibility in shaping their consumer offerings and pricing and will handle billing and credit-card information.
Pressplay will keep a tighter rein on customer relationships, in order to keep its offering consistent across various destinations. It will set prices and design its own parameters for the consumer service, as well as handle billing and credit-card information.
The federal scrutiny of the joint services may have broader implications for entertainment companies' efforts to move into new digital means of distribution. Major movie studios already are working to form their own joint ventures in two different areas: movie-on-demand services and digital delivery of films to theaters.
