Privately, some complain the FTC double-crossed them. They accuse the FTC of holding a grandstanding press conference, and claim most reporters botched the story. Either way, the industry learned a painful P.R. lesson about the dangers of allowing your opponent to set the public agenda.

The record industry and the FTC have long been hardened enemies. Over the past decade, the FTC has spent much of its time investigating CD pricing. Its central beef: CD prices are artificially inflated.

In 1997, the FTC set its sights on MAP, the so-called "minimum advertising pricing" policy established by the record industry to make sure CDs aren't sold too cheaply at certain retail chains.

MAP came to the record industry five years ago when music retailers began complaining about the beating they were taking at the hands of aggressive mass-merchants like Circuit City and Best Buy. These companies were selling CDs at a loss in order to increase foot traffic.

With MAP in place, retailers who sold CDs below a certain minimum price were no longer eligible for crucial ad dollars that flowed from the labels; some might even have CD shipments withheld.

Looking into the legality of MAP, the FTC began gathering up label documents and e-mails, and grilling executives. "I'd have lawyers in my office for three, four hours at a time," says a V.P. of sales at one major label.

On May 10, in the interest of getting FTC lawyers out of their hair, the Big Five major labels agreed to do away with MAP.

At first, the labels were happy. They thought getting rid of MAP was the end of the story. Then the FTC trumpeted the case, promising that CD prices would quickly drop by nearly $5, a notion the press jumped on. "Prices of CDs Likely to Drop, Thanks to FTC," read the Wall Street Journal headline. "FTC settlement will bring CD prices down," proclaimed the New York Post.

Many in the industry believe that the reporters covering the story relied too heavily on FTC spin and failed to understand how MAP actually works.

In fact, the bulk of the industry's decision to drop MAP can be traced back to the merger fever of the past year.

After Sony and Time Warner announced their plans to merge Columbia House Record Club with CD Now (a deal since quashed), and Time Warner unveiled its plan to merge with AOL, the FTC took the driver's seat. Drop MAP, they told the labels, or you'll endanger these mergers.

Time Warner, anxious to grease the regulatory skids and avoid court action, was the first to bend backwards on MAP. The other four labels quickly followed. "They put so much pressure on Time Warner," says one V.P. "Otherwise none of us would have gone along with it."

In truth, the FTC's final agreement with the majors was seen as a slap on the wrist (i.e. we didn't do anything wrong, and we won't do it again).

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