FTC Settles With Big CD Makers-Cheaper CDs Coming?

kid_wonder writes: "The FTC today announced that they had '... reached separate settlement agreements with Universal Music and Video Distribution, Sony Corp. of America, Time-Warner Inc., EMI Music Distribution and Bertelsmann Music Group (BMG), the five largest distributors of recorded music who sell approximately 85% of all compact discs (CDs) purchased in the United States to end their allegedly illegal advertising policies that affected prices for CDs.' "

Comments

Not so clear-cut

[NMerriam]

I know that the instant reaction is "hooray", and ultimately this will result in lower proces at places like Best Buy (remember when they used to sell new releases for $9.99?).

But this isn't necessarily the case of record companies gouging consumers, so much as record companies "protecting" stores.

Every store buys their CDs for pretty much the same wholesale price (maybe $11), and the MSRP is $15-20. But Best Buy was a new kid on the block and was will ing to lose a dollar on every CD to get you in the store, hoping you'd pick up a CD player or a video game while you're there.

Now this sounds like a good deal until you realize that a Record Store can't sell their music for less than what they paid, and essentially have no chance of competing with a megastore that can treat music as a loss leader. So record stores have been closing, and our musical choices at Best Buy are (needless to say) more along the lines of Britney Spears than Indy Imports.

Granted, this is pretty much the same issue as brick-and-mortar places will face in regards to online retailers offering significant discounts, even willing to lose money to build business the same way best Buy did the first few years.

But economics doesn't go away just because CDs are cheaper for a few years. What happens when everyone but Best Buy (or CDNow or whoever) has gotten out of the CD business? When all the local record stores have closed, and Best Buy decides to start charging $15/CD again? You're screwed, because there's no more record stores. Best Buy can survive a war of attrition a lot longer, and once they win they have no requirement to keep the proces low.

Not that this will necessarily happen (in fact i consider it unlikely simply because online retailers will always be available for CDs at the lowest retail cost).

But it isn't an imaginary fear that the record stores have -- look at the stores that have closed in the wake of the Wal-Martization of america...

Before you americans complain about cd prices..

[pallex]

...spare a thought for those of us in the u.k. who (sometimes) buy a cd for around 17 pounds (probably about 30 dollars).

Cant think why mp3 sites are so popular...

Check out the footnote

[LordNimon]

1. Commissioners Swindle and Leary have previously stated ...

It took me a few seconds to realize that Swindle and Leary are the last names of two commissioners on the FTC! FTC doesn't like swindlers, and they're leary (leery) of any minimum advertised price policies.

Now what's the excuse

[Anonymous Coward]

Gee, so if prices drop down to $10 US, what excuse will all the Napster kiddies use? I know, they'll just insert the new price and make the same argument! "Dude, CD's are way overpriced at $10 bucks. I'd buy them if they were priced at $5, they way they should be." Moderate away

The Entertainment Industry is a Cartel

[dave_aiello]

As I said in my story submission on this subject (that was rejected), U.S. Federal Trade Commissioner Robert Pitofsky said, ""The FTC estimates that U.S. consumers may have paid as much as $480 million more than they should have for CDs and other music because of these policies over the last three years." If you turn over your envelope and do the arithmetic that's nearly $2 stolen by the recording industry for each man, woman, and child alive in the United States today. And this is just over the last three years.

It's so obvious why the recording industry settled this case. Taking it to court would have raised the profile of the case, and eventually some journalist who thinks for himself would have asked the inevitable question: Is the mp3 issue the biggest problem facing the entertainment industry, or is the real story that the entertainment industry takes every opportunity to act in unison, to the detriment of the consumer.

I argue that we ought to be looking at a lot more than CD prices here. What about the price of movie tickets? What about the cost and features of your local cable television monopoly^H^H^H^H^H^H^H^H service? What about the retail cost of (ahem) Microsoft Windows and business applications for the PC when they are not bundled into a PC at purchase?

There are dozens of examples of consumer goods and services where no effective competition exists, at least in the industrialized countries. I am not as much of a populist as it might seem from what I've said. But, the least these multi-national companies could do is to let the retailers compete on the price.
--

Dave Aiello

How many of you think....

[nicedream]

How many people think that this is just a quick fix by the record companies to get the feds off their back? Maybe cd prices will go down, but I can't see the prices going down any more than a dollar or two, but nowhere near where they should be.

In other words, this is probably just for show. Then when mp3 pirating continues, the monopolistic pricing excuse just won't be able to hold up.

Re:End Result

[Alan Cox]

Competition will I think help. The big vendors will continue to rip off the music stores who will continue to rip off the customer in self defence.

Independants and people looking for better margins will pick up music from outside the expensive megamedia cartel. This is classic business technique. You break into a new market by selling a product to the stores at a higher margin for them but similar RRP to the competition. The stores love you, they want to sell your product more so you get better coverage. If they make more selling one of your CD's versus 5 of the cartels whose CD's will they push. If small bands start granting cheap radio play deals to radio stations who are they going to play more of.

MP3 is just one of the tools, the time is about ripe IMHO for an incomer into the industry to make an absolute killing by making consumers and bands far happier. In fact if they were smart a group of big name bands probably ought to get together to found such a label and get out from under the thumb of the cartel.

Alan

A tough one for libertarians

[laborit]

The distributors who own the vast majority of popular music were collaborating to fix prices at a level higher than retailers wanted to charge and customers wanted to pay. This is the kind of situation I'd like to see libertarians explain away. Although I agree that many things are over-regulated, it seems like government intervention on antitrust grounds is in this case positive for the consumer and good for business (i.e., the retail businesses gain more than the distributors lose). A small group of companies were using their power to our detriment, while their wide-ranging IP rights made a selective boycott impractical. I can't see how market forces could have solved this one; it's hard to vote with your pocketbook when there's no competition.

I suppose one might argue (as many have) that the MP3 explosion did represent a popular response to the problem. But that too is outside the libertarian system which, if I recall, does respect IP...

- Michael Cohn