Originally created 05/11/00

CD prices may fall if industry, FTC cooperate



The Federal Trade Commission said Wednesday it has reached separate agreements with five major music companies that might lead to lower compact disc prices for retailers and consumers.

The companies are Universal Music and Video Distribution, Sony Corp. of America, Time Warner Inc., EMI Music Distribution and Bertelsmann Music Group (BMG). Together they sell 85 percent of all CDs purchased in the United States, according to the FTC.

The FTC said music companies illegally modified their advertising programs to encourage retailers to charge customers higher prices. The companies required retailers to advertise CDs at a "minimum advertised price" in order to benefit from cooperative advertising money, the commission said.

Distributors then were able to increase the prices they charged retailers.

The settlements proposed by the FTC would prohibit the five companies from offering promotional funds in connection with the advertised prices of their retail customers for the next seven years.

The public has until June 9 to comment on the settlements before the FTC makes them final.

Consumers in the United States possibly have paid $480 million more than they should have for CDs and other music during the past three years, according to an FTC release.

Local businesses that buy and sell CDs noted the increase in prices and say they believe the regulation is necessary.

Kevin Young, store manager of CD Warehouse, said he struggles to make a profit from new CDs. "If we make $1 on a new CD, we're lucky," he said.

Record labels are getting too greedy, he said. "The cost of production is going down, and the cost to us is going up. When Kid Rock's CD came out a year and a half ago, it cost $7, and now the cost has almost doubled."

Dave Hensley, owner of Music Unlimited, a disc jockey entertainment company, purchases about 20 CDs every 90 days for his five disc jockeys.

"The costs are astronomical when it costs little or nothing to make them," Mr. Hensley said.

The prices not only effect Mr. Hensley but also his clients.

"The price of CDs is a heavy factor in my cost projection to customers," he said.

In the early 1990s, a price war encouraged retailer discounting, dropping the price of CDs to as low as $9.99. But in 1995 and 1996, the record companies adopted the "minimum advertised price" to stop the discounting, the FTC said.

If prices of CDs drop as a result of the new regulation, Mr. Hensley said his expenses would shrink and lower costs would be reflected in the prices he charges for disc jockey services.

The FTC settlements also would make it easier for smaller stores, such as CD Warehouse, to compete with larger retail stores.

"We try to keep our prices close to them now, but we don't make a lot on new ones (CDs) after royalties and shipping. Best Buy orders 500,000 at a time and can do what they want to because of the volume that they buy," Mr. Young said.

If the prices come down, Mr. Young said CD Warehouse will continue to keep its prices as low as possible.

Reach Jennifer Bishop at (706) 823-3217.