Compact disc prices to be scrutinised again
Wednesday 15 July 1992
Sir Bryan Carsberg, who became director general of the OFT in June, is to examine whether regulatory action is needed only months after his predecessor, Sir Gordon Borrie, gave the industry a clean bill of health.
In a letter to Nigel Griffiths, a Labour spokesman for consumer affairs, Sir Bryan said that he wanted to look at the evidence. It is believed Mr Griffiths had approached the OFT saying that there was widespread dissatisfaction with the conclusions of the earlier investigation.
The British Phonographic Industry reacted angrily yesterday. John Deacon, the director general of the BPI, said: 'We earn valuable foreign currency for the UK economy and British music and musicians are widely respected around the world. It is unfortunate that such success, from one of Britain's leading cultural industries, is not better understood at home.'
In April, Sir Gordon wrote to the BPI saying that he could see little reason why CD prices were so high, but that consumers appeared willing to pay the prices charged. He concluded that there was no monopoly in the business and no evidence of collusion between CD producers or retailers.
The manufacturing cost of a CD is about pounds 1 yet the retail price can be pounds 12.99 or more. The BPI said that such comparisons were a 'nonsense' as the price of signing up a new act and relasing a new CD album could be pounds 250,000.
In the first quarter of this year, the average retail price of a CD was between pounds 8 and pounds 9 with 'bargain basement' CDs reportedly selling for as little as pounds 2.99. But the price to the trade was pounds 5.34 compared with pounds 3.70 for a vinyl LP and pounds 3.72 for a cassette. Retail prices tend to be about 60 per cent higher than trade prices because of distribution costs and the profit margins taken by the retailers.
The higher CD prices are causing concern as they persist even though CDs are no longer an elitist product. In the 12 months ending in March this year, British sales of CDs reached 64.2 million, overtaking cassette sales of 63.8 million. Sales of vinyl LPs dwindled to 11.1 million in the same period.
This is in contrast with the picture two years earlier, when vinyl sold 35.4 million and cassettes 80.9 million, compared with CD sales of 44.6 million.
Although Sir Bryan will look first at the evidence already collected, the fresh approach was warmly welcomed by consumer groups. The Consumers' Association said: 'Its very good news indeed and suggests the OFT does believe there are new angles to explore.'
But a spokesman for the BPI said: 'The industry has alreday been cleared by Sir Gordon and I cannot see that any new evidence has come to light.'
Sir Leon Brittan, the European competition commissioner, confirmed yesterday that the EC saw no need for a formal investigation of the CD business. But he added: 'The commission remains alert to the possibility of anti- competitive behaviour in relation to compact disc prices.'
He said the commission had powers to take action if enough evidence emerged of foul play.
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