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CD Price-Fix Settlement Won't Impact Video

4 Oct, 2002 By: Joan Villa

Retailers and suppliers think the recent price-fixing settlement in the CD business won't affect video pricing policies.

Five major record companies agreed to pay $143 million in cash and free CDs to settle consumer class-action suits that charged the music industry's practice of setting a minimum advertised price (MAP) resulted in artificially high prices for CDs.

Although MAP is also commonly used to establish the minimum price a retailer can advertise for a DVD or VHS title, suppliers and retailers believe video policies differ significantly from those of the music industry.

Warner Music Group, Universal Music Group, BMG, EMI, Sony and, to a lesser extent, retailers Tower Records/Video, Musicland and TransWorld Entertainment will contribute a total $67.4 million and 6 million CDs, valued at $75.7 million, to settle price-fixing charges brought by 42 states and multiple class-action consumer suits.

Consumers in 50 states will receive refunds, while the CDs will be distributed to schools and other community groups, according to New York State Attorney General Eliot Spitzer, who labeled the antitrust agreement a “landmark settlement to address years of illegal price fixing.”

Suppliers, however, claimed no wrongdoing. EMI called the settlement “a business decision,” and UMG characterized its policies as “pro-competitive and geared toward keeping more retailers, large and small, in business.”

Tower VP of video sales John Thrasher said music industry MAP policies were not intended to inflate prices but to foster competition by protecting stores from below-cost selling. However, rather than withhold co-op dollars to those retailers who advertised below MAP, music policies also extended to in-store prices.

“On the video side, if the MAP was $19.99 but the merchant sold for $16.99, they could do so, but on the audio side you couldn't, which is really what got the big record companies in trouble,” explained Thrasher, who confirmed Tower paid $275,000 as one of three retailers in the settlement.

Thrasher said unchecked competition harms specialists that struggle to match low prices by big-box retailers that can make up the loss on other products.

“The companies that have successful gains also have a limited selection of products, sell only the hits below cost and have other products to make up for the margin loss,” he added. “What it's going to mean for the consumer -- and one day they'll wake up to this -- is less choice, less options. Right now it's a very sad day indeed.”

Video suppliers believe the settlement won't impact video industry MAP policies, which are much less “stringent” or “draconian” than those of the music industry, according to one home video chief.

“Our MAP policy simply says that if you advertise a title below MAP, we won't pay for that ad. You don't lose any other funds for other ads you run, and you can price the thing however you want,” he explained. “The music industry, by contrast, was very tough, sometimes all the way to the shelf. If someone had a price sticker below MAP, they'd lose all ad funds on all titles for 90 days.”

One reason the video industry has never had tough MAP policies, another studio video chief said, is that particularly with DVD, the video industry believes in widening distribution “rather than protecting certain retailers” from deep discounting.

“If you want to grow the business, you have to embrace Wal-Mart and the other mass merchants,” he said. However, the executive added that he works closely with the music side of his studio parent.

“I can tell you, sitting here in the music business, there was price-fixing going on,” he said. “That's why they had to settle. But in video, there's never been anything. It's just not there. Open any circular on any weekend, and it's obvious the retailers are doing what they want. There's nothing holding them back like there is in music.”

The Video Software Dealers Association agrees that video MAP policies will not be affected.

“Those sorts of practices that were the real root of the problem are not occurring in the video industry,” said Sean Bersell, VP, public affairs. “If anything, we have very, very aggressive price competition.”

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