Sir Bryan Carsberg, Director-General of Fair Trading, has privately told industry leaders that he believes 'a complex monopoly' exists in the supply of compact discs and that competition has not been working effectively. Artists such as Mark Knopfler of Dire Straits have also complained about the price of CDs.
An announcement is due to be made on Thursday, shortly after the Commons National Heritage Committee publishes a damning report on the price of CDs.
Sir Bryan's decision flies in the face of his predecessor, Sir Gordon Borrie, who said last year that there were no grounds for an MMC inquiry. Ministers at the Department of Trade and Industry are believed to oppose interference with one of Britain's most successful industries and biggest export earners, but are powerless under the Fair Trading Act to contest Sir Bryan's decision.
The MMC will be given nine months for the investigation. It is to be asked to concentrate on the application of copyright laws to the music industry, which MPs on the national heritage committee believe keep CD prices artificially high and prevent an inflow of cheaper imports.
Maurice Oberstein, executive vice- president of PolyGram, said any meddling with the copyright laws would be 'a hugely dangerous enterprise' that would almost certainly backfire and destroy a thriving industry. It would also have profound implications for other successful British industries such as pharmaceuticals and publishing. 'I can tell you right now that it would have hardly any impact on the price of CDs, but would be highly destructive of smaller independent record producers and retailers. 'Why are they picking on us? Copyright exists in all kinds of industries and it applies all over the world. We are not allowed to export our product to the US. If we could, the price of CDs would be lower.'
He also claimed that 'almost all of us lose money on our UK trading. We make money out of our overseas royalties, which is a huge benefit to the UK economy, but it is a total red herring to say we are profiteering at the British consumer's expense.'
Mr Oberstein, whose comments were echoed by Rupert Perry, UK chief executive of EMI Records, said he found it 'simply incredible' that Sir Bryan had 'caved into the rantings' of the Commons select committee.
'I could have told you what that committee was going to write before they even sat down to think about it. They wouldn't listen to our arguments. They wouldn't look at the figures.'
The British market in CDs is dominated by just four players: PolyGram, Thorn EMI, Warner Records and Bertelsmann Group. Though Sir Bryan accepts that no evidence exists of a cartel, he is concerned that copyright laws and binding contracts between artists and music companies have the effect of creating a 'complex monopoly'.
They also, he believes, severely restrict imports of cheaper CDs from the US. According to the industry, there is no significant difference between the wholesale price of CDs in Britain, which averagesabout pounds 5 per disc, and its US counterpart.
Much of the blame for high CD prices, the industry claims, lies with retailers. It says prices are lower in the US largely because of the economies of scale that US producers enjoy.
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