The settlement brings to a close accusations made by attorneys general of 41 states and commonwealths who accused record companies of conspiring with music distributors to boost the prices of CDs between 1995 and 2000.
The companies broke state and federal antitrust laws, costing consumers millions of dollars, the attorneys general had charged in a lawsuit filed in August 2000 in U.S. District Court in Manhattan and later moved to Portland, Maine. A judge there must approve the deal.
The settlement calls for $67.3 million cash to be distributed to the settling states to compensate consumers who overpaid for CDs during the period and to pay settlement administration costs and attorneys' fees.
Consumers who bought CDs between 1995 and 2000 can file claims for part of the fund, prosecutors said. Public announcements will be made later to inform consumers how to participate in the payout.
The settlement also requires 5.5 million CDs valued at $75.7 million to be distributed to public entities and nonprofit organizations in each state to promote music programs.
The settlement will be distributed according to state population, although attorneys in the case are still working to determine a formula. New York, for example, will receive about 6 percent of the settlement.
Consumers in all 50 states will benefit under terms of the settlement, New York State Attorney General Eliot Spitzer said in a statement.
"This is a landmark settlement to address years of illegal price-fixing," Spitzer said. "Our agreement will provide consumers with substantial refunds and result in the distribution of a wide variety of recordings for use in our schools and communities."
The music distributors participating in the deal are Bertelsmann Music Group, EMI Music Distribution, Warner-Elektra-Atlantic Corporation, Sony Music Entertainment and Universal Music Group.
"We deny any wrongdoing," Warner-Elektra-Atlantic said in a statement. "We have made a business decision to settle these matters and avoid continuing with expensive and protracted litigation. The settlement made sense to us from a business perspective, and enables WEA to put this matter behind us."
Nathaniel Brown, a Bertelsmann Music Group spokesman, noted that the settlement does not state that there was any wrongdoing. He said the company maintains that its pricing practices were "appropriate and lawful" throughout the period.
Sony declined to comment. EMI and Universal did not immediately return telephone messages for comment.
Also included in the deal were three national retail chains: Trans World Entertainment, Tower Records, and Musicland Stores, a division of Best Buy Co. Inc.
Dawn Bryant, a spokeswoman for Musicland, said the company had no immediate comment. Trans World Entertainment spokesman John Sullivan said, "We were wrongly accused and nobody admitted any wrongdoing." Tower Records did not immediately return messages.
The lawsuit alleged that the companies — upset with low prices charged by some stores — conspired with retailers to set music prices at a minimum level, effectively raising the retail prices consumers paid for CDs.
The conspiracy caused the elimination of price discounting and significantly reduced price competition among music retailers, Spitzer said.