Sunday, February 01, 2004
CD WOW: Take A Bow And Exit Stage Left.........
Paul Boon spent much of Thursday afternoon glued to the internet. While those around him were busy ensuring administrative life at City University continued as normal, Paul was busy securing last minute bargains on CD Wow’s web site. His morning paper had brought the news that the popular music retailer had settled out of court with the British Phonographic Industry in a deal which would see their prices increase by £2 from Sunday 25th of January. “As soon as I heard about the move in price I bought five albums I had my eye on”, he said. Paul is undoubtedly just one of many who blazed the information super highway to CD-Wow.co.uk at the tail end of last week. The news that the BPI was originally taking the retailer to court had angered many music fans. As Paul states, “for the last two years I’ve bought probably an average of three or four CDs a month. I mean before I learned of the site I bought the same amount in HMV and Virgin but with CD Wow I found I was able to buy three albums for less then the price of two. When you bulk buy like I do you quickly notice the savings. You realise how screwed you’d been for years.”
BPI, the industry watchdog, believed the Hong Kong based company was engaged in ‘parallel importing’, a process which exists when goods are brought in from outside the European Economic Area (EEA) and then distributed locally. Goods bought wholesale from outside the EEA are generally cheaper then if bought within. As a result the distributor, or retailer, is able to sell them on to the consumer at a reduced price. In the case of CD Wow, CD’s were bought from Asia at a cost of about £6.50 and then sold to the consumer at a cost of £7.99. If the company had bought from within the EEA, (as high street stores do), then they would have paid about £9 for each CD before selling it on. Under the settlement with the BPI, CD Wow will now be forced to buy their wholesale stock from within the EEA and this in-turn will lead to a price increase.
While consumers like Paul lament the loss of cut price CDs, the real loss lies in the lack of a court case to test the principle that retailers are forced to source their stock from within the EU simply because it suits the British Record Industry. Indeed a day out in court would have served to offer some sort of challenge to the way the industry treats its consumers. According to the Office of Fair Trading, up until two years ago British retailers were unfairly “encouraged” to only buy from UK wholesalers as opposed to their cheaper European counterparts. A report published in September 2000 found that “retailers who had imported CDs (from within the EEA) were punished” by the UK record labels. According to the OFT, “this included threats to withdraw, or the withdrawal of, marketing and promotional support and/or preferential discounts.” In other words, British retailers were all but forced to steer clear from buying their stock in cheaper countries, such as Germany, even though the law protects their right to do so. As a result British and Irish consumers lost out paying more then their German counterparts for the exact same product simply because it kept the UK record bosses happy.
The evidence uncovered by the OFT, coupled with the CD Wow case, indicates the British music industry is no stranger to bullish techniques when it comes to protecting its interests. According to the Consumer Association, “UK record companies have been ripping off consumers for years”. The association added that CD Wow was trading legitimately and that “UK consumers are perfectly within their rights to import goods to the value of £18.” So the BPI has in fact won a battle they might not have won had it gone to court. CD Wow continues to insist that they were doing no wrong and describe the settlement as a “huge disappointment”. They simply say that “the risk-reward ratio of spending months in court wasn’t right.” In essence the upstart retailer was scared off by the industry machine.
It all continues to look increasingly glum for people like Paul. A glance over the initiatives set in place by the industry as a whole over the last five years serves to conclude that record companies are intent at controlling how we the consumer access music, and how we then use it. For instance an increasing number of CDs are now manufactured in such a way that doesn’t allow them to be played on computers. The industry dictates that the days of listening to music on your office computer will soon become a thing of the past. From a public relations point of view such actions are mind boggling. The music industry has never been held lower in public disgust. The common perception is that it is powered by greed and ran by people out of touch with the consumer and the modern world in the wake of the internet revolution. The RIAA, the US equivalent to the BPI, has begun suing its own consumers for downloading music even going as far as bringing a 70-year-old woman to court. The war on downloaded music is another issue all together. It had threatened to bring the music industry to its knees and in spite of all their efforts is here to stay. However, despite the doom and gloom the industry likes to paint itself in, 2003 was a record year for album sales. Profits were down on previous years mainly due to reduced prices but volume was up. People are still buying CDs and will continue to do so as long as the price is right. The logical thing, it would seem, would be to build on this growth rather then risk losing people to illegal means of securing music. The perception of the CD Wow case is that the music industry is preventing the sale of cheap CDs and this can only harm the industry itself. The BPI argues that people don’t realise the amount of costs incurred by record labels in producing a CD. Yet that fails to answer as to why CDs are more expensive in the UK then any where else in the world. Music fans like Paul are becoming sick of being pushed around, “I accept that downloading music illegally is wrong because it costs people their jobs and the bands don’t get paid. I hate though that it’s been proven that a company can sell cheap CDs legally but that the powers that be want to do away with that.”
The effect of the BPI's victory remains to be seen. They now have ultimate power over CD sales in the UK and thus can dictate the cost for the consumer. They continue to fight their corner and have recently issued legal action against play.com, another cheap internet retailer. So if the BPI has emerged victorious then who is the loser in this affair? CD Wow? No, they have seen their turnover jump from £5 million in 2000 to an estimated £100 million last year. While they are robbed of their prime marketing tool, they will doubtless reap the benefits of a successful brand name. Nope the real losers, as always, are the consumers. The Consumer Association describes the settlement between CD Wow and BPI as “a sad day for consumers and a sad day for e-commerce…… What is the point of the Internet in commercial terms if consumers are prevented from using it to buy goods from abroad?” They hope to urge the government and the European Commission to move in protecting consumers interests against “big industry cynicism.” So once again music lovers like Paul will return to paying higher prices in HMV and Virgin. He jokes that the only legal alternative is to “go to America with a big suitcase.” Fans now loath the labels for supposedly ‘acting in their interests’ or to put it as the BPI do “It is not the consumer that will suffer, just CD Wow's profit margins. They made a lot of money out of cheap CDs." Need we say anymore?
Stephen Cummins
Paul Boon spent much of Thursday afternoon glued to the internet. While those around him were busy ensuring administrative life at City University continued as normal, Paul was busy securing last minute bargains on CD Wow’s web site. His morning paper had brought the news that the popular music retailer had settled out of court with the British Phonographic Industry in a deal which would see their prices increase by £2 from Sunday 25th of January. “As soon as I heard about the move in price I bought five albums I had my eye on”, he said. Paul is undoubtedly just one of many who blazed the information super highway to CD-Wow.co.uk at the tail end of last week. The news that the BPI was originally taking the retailer to court had angered many music fans. As Paul states, “for the last two years I’ve bought probably an average of three or four CDs a month. I mean before I learned of the site I bought the same amount in HMV and Virgin but with CD Wow I found I was able to buy three albums for less then the price of two. When you bulk buy like I do you quickly notice the savings. You realise how screwed you’d been for years.”
BPI, the industry watchdog, believed the Hong Kong based company was engaged in ‘parallel importing’, a process which exists when goods are brought in from outside the European Economic Area (EEA) and then distributed locally. Goods bought wholesale from outside the EEA are generally cheaper then if bought within. As a result the distributor, or retailer, is able to sell them on to the consumer at a reduced price. In the case of CD Wow, CD’s were bought from Asia at a cost of about £6.50 and then sold to the consumer at a cost of £7.99. If the company had bought from within the EEA, (as high street stores do), then they would have paid about £9 for each CD before selling it on. Under the settlement with the BPI, CD Wow will now be forced to buy their wholesale stock from within the EEA and this in-turn will lead to a price increase.
While consumers like Paul lament the loss of cut price CDs, the real loss lies in the lack of a court case to test the principle that retailers are forced to source their stock from within the EU simply because it suits the British Record Industry. Indeed a day out in court would have served to offer some sort of challenge to the way the industry treats its consumers. According to the Office of Fair Trading, up until two years ago British retailers were unfairly “encouraged” to only buy from UK wholesalers as opposed to their cheaper European counterparts. A report published in September 2000 found that “retailers who had imported CDs (from within the EEA) were punished” by the UK record labels. According to the OFT, “this included threats to withdraw, or the withdrawal of, marketing and promotional support and/or preferential discounts.” In other words, British retailers were all but forced to steer clear from buying their stock in cheaper countries, such as Germany, even though the law protects their right to do so. As a result British and Irish consumers lost out paying more then their German counterparts for the exact same product simply because it kept the UK record bosses happy.
The evidence uncovered by the OFT, coupled with the CD Wow case, indicates the British music industry is no stranger to bullish techniques when it comes to protecting its interests. According to the Consumer Association, “UK record companies have been ripping off consumers for years”. The association added that CD Wow was trading legitimately and that “UK consumers are perfectly within their rights to import goods to the value of £18.” So the BPI has in fact won a battle they might not have won had it gone to court. CD Wow continues to insist that they were doing no wrong and describe the settlement as a “huge disappointment”. They simply say that “the risk-reward ratio of spending months in court wasn’t right.” In essence the upstart retailer was scared off by the industry machine.
It all continues to look increasingly glum for people like Paul. A glance over the initiatives set in place by the industry as a whole over the last five years serves to conclude that record companies are intent at controlling how we the consumer access music, and how we then use it. For instance an increasing number of CDs are now manufactured in such a way that doesn’t allow them to be played on computers. The industry dictates that the days of listening to music on your office computer will soon become a thing of the past. From a public relations point of view such actions are mind boggling. The music industry has never been held lower in public disgust. The common perception is that it is powered by greed and ran by people out of touch with the consumer and the modern world in the wake of the internet revolution. The RIAA, the US equivalent to the BPI, has begun suing its own consumers for downloading music even going as far as bringing a 70-year-old woman to court. The war on downloaded music is another issue all together. It had threatened to bring the music industry to its knees and in spite of all their efforts is here to stay. However, despite the doom and gloom the industry likes to paint itself in, 2003 was a record year for album sales. Profits were down on previous years mainly due to reduced prices but volume was up. People are still buying CDs and will continue to do so as long as the price is right. The logical thing, it would seem, would be to build on this growth rather then risk losing people to illegal means of securing music. The perception of the CD Wow case is that the music industry is preventing the sale of cheap CDs and this can only harm the industry itself. The BPI argues that people don’t realise the amount of costs incurred by record labels in producing a CD. Yet that fails to answer as to why CDs are more expensive in the UK then any where else in the world. Music fans like Paul are becoming sick of being pushed around, “I accept that downloading music illegally is wrong because it costs people their jobs and the bands don’t get paid. I hate though that it’s been proven that a company can sell cheap CDs legally but that the powers that be want to do away with that.”
The effect of the BPI's victory remains to be seen. They now have ultimate power over CD sales in the UK and thus can dictate the cost for the consumer. They continue to fight their corner and have recently issued legal action against play.com, another cheap internet retailer. So if the BPI has emerged victorious then who is the loser in this affair? CD Wow? No, they have seen their turnover jump from £5 million in 2000 to an estimated £100 million last year. While they are robbed of their prime marketing tool, they will doubtless reap the benefits of a successful brand name. Nope the real losers, as always, are the consumers. The Consumer Association describes the settlement between CD Wow and BPI as “a sad day for consumers and a sad day for e-commerce…… What is the point of the Internet in commercial terms if consumers are prevented from using it to buy goods from abroad?” They hope to urge the government and the European Commission to move in protecting consumers interests against “big industry cynicism.” So once again music lovers like Paul will return to paying higher prices in HMV and Virgin. He jokes that the only legal alternative is to “go to America with a big suitcase.” Fans now loath the labels for supposedly ‘acting in their interests’ or to put it as the BPI do “It is not the consumer that will suffer, just CD Wow's profit margins. They made a lot of money out of cheap CDs." Need we say anymore?
Stephen Cummins
