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...

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