Commentary: Song and dance over CD prices

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The Independent Online
Compact disc prices are too high. Cassette prices are creeping up, too. That's not just the opinion of music buyers, but of Sir Simon Hornby, chairman of the WH Smith group, the largest seller of pre-recorded music in the country. Smith insists the retail trade is not to blame. Its gross margin on CDs is the same in Britain as in the States, where CDs are two-thirds or even half the price.

The real culprits, it says, are the producers, a few powerful international organisations like Philips, Sony and Thorn EMI. For them, the UK market - 8 per cent of the world market - is a sideshow. They can therefore charge UK buyers high prices and hang the consequences.

Producers argue that in the UK there are not the same scale economies as in the US. State taxes there are invariably lower than Britain's 17.5 per cent VAT. After all, virtually all consumer products are much cheaper there, not just CDs.

It is also hard to accept that Smith, which owns the Our Price chain and has a half-share in Virgin Retail, has no buying clout. Twenty-eight per cent of UK market share and music sales of pounds 500m must count for something.

The Office of Fair Trading cleared the Virgin purchase earlier this year, perhaps believing that if Smith had extra muscle it would be able to negotiate better prices and pass them on. That is, in theory you neutralise one cartel by allowing another one further down the supply chain.

Unfortunately, the danger is that the consumer gets ripped off not once, but twice. Perhaps that is why Sir Bryan Carsberg, the incoming director-general at the OFT, is re-examining the evidence.

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