Music industry blind to its own faults over falling sales

PUBLISHED : Monday, 12 January, 2004, 12:00am
UPDATED : Monday, 12 January, 2004, 12:00am

One of the most consistently fascinating stories of the past decade has been the gradual implosion of the record industry. While most industries have seized the opportunities that new technologies, and particularly the internet, have presented, the music business has done the opposite.

Whether it be adopting new formats, looking for innovative features or just coming to grips with the internet, the record industry has been a case study in procrastination, technophobia and greed.

And while the world begrudges the high prices of a dwindling range of poor quality pop, the industry looks everywhere but the mirror to cast the blame for its falling profits.

London's High Court is about to hear a lawsuit against Hong Kong-based Music Trading On-Line (HK), which sells CDs and DVDs online under the name CD-Wow.

The British Phonographic Industry (BPI), which is behind the suit, also began a case against another online trader,, and may also sue

On the face of it, the three retailers are doing nothing wrong. Each is selling legitimate products produced and manufactured by the same record companies who are behind the suits.

CD-Wow, for one, claims that it even buys all its music direct from the labels themselves.

However, according to European Union copyright laws, as the discs were produced outside the EU, they are no different to pirates. The same law was brought to bear against British supermarket Tesco two years ago, when it was sued by Levi Strauss for selling jeans bought in the United States.

What is more, CD-Wow founder Philip Robinson has a somewhat wobbly reputation. Twelve years ago, he was a shareholder in Tring International, a company that was sued by Island Records and Polygram for releasing records without permission.

Parallel import legislation exists to protect industries against legitimate competition, but it is not always wrong.

Pharmaceutical companies have long argued the case that they must be allowed to charge different prices in different regions if they are to pay for research and still get affordable drugs to developing countries.

That is a good argument. But music is not medicine - it is a luxury product, and there can be no moral reason to restrict music imports. Nor is there a financial one. The cost of product development is miniscule, the cost of production is in constant free-fall, and about 60 per cent of the sales price goes directly to the label.

Mr Robinson says CD-Wow's turnover now reaches ?100 million (HK$1.43 billion) a year. It makes 50 pence to 60 pence profit on each CD it ships. But it still manages to undercut the competition by as much as 50 per cent.

The best-selling album in Britain is Dido's Life For Rent. On it is US$13.49, on ?8.49, on ?8.49 and on CD-Wow ?7.99. For a British record buyer, CD-Wow would be the logical choice.

The situation is even clearer with less well-known artists. Joe Strummer's posthumous album Streetcore, which was released in November, costs US$13.49 on, ?9.99 on, ?9.99 on and ?8.99 at CD-Wow. Unlike Amazon, neither Play nor CD-Wow charge postage.

Meanwhile, in tax-free Hong Kong, which also has dubious parallel import laws, HMV expects me to pay HK$99 for Life for Rent but a wallet-numbing $175 for Streetcore.

While the industry often claims its big sellers help subsidise the little guy, it does not look that way to me.

Ironically, the BPI is a supporter of the International Federation of the Phonographic Industry's (IFPI) Give Music A Break campaign. 'If you love music and want to pay a fair price for it, sign the petition,' pleads the IFPI. But what do they blame for the high prices? European tax rates.

And while it is true that Britain's 17.5 per cent value added tax would scare the pants off most Asian shoppers, if the industry really cared about how much tax we paid, they would cut the price of CDs and the tax burden would automatically drop.

Apparently, it is fine to use European laws when it comes to keeping prices artificially high, but when it comes to paying taxes on those profits, suddenly the BPI cares about the consumer's pocket.

Faced with such hypocrisy and high prices, it is hardly surprising that some consumers see Kazaa as the logical next step. If you know full well that a company is overcharging you for a product, it is only natural that you should resent paying them.

Incidentally, I paid for both records. I could easily download Streetcore from Kazaa, but I just wouldn't feel right about it. It would be like robbing the man's grave.

Neil Taylor is SCMP's Technology Editor.