Record label ‘restrictive pricing’
p2p news view / p2pnet: Recent reports say that US authorities have started an investigation into the online music industry, looking into, “possible anti-competitive practices”.
This issue resonates in Australia, where consumers may be paying almost three times more for digital music downloads than they should be.
In 1998, the parallel-import amendments to the Copyright Act 1968 were enacted, allowing retailers to import compact discs and sell them, provided they were legitimately manufactured overseas under licence. The major record companies opposed these changes, claiming they’d destroy the local recording industry.
The record companies lost the argument, and in 2001 the Federal Court found Warner Music, Universal Music and a number of executives had misused their market power by engaging in exclusive deals to prevent parallel imports of CDs.
Music CD consumers have two options: they can purchase locally made CDs or they can buy cheaper ones imported legally by Australian retailers. While Australian record companies have complained about these “$10 CD stores”, these outlets are not breaking the law.
Record companies harbour animosity against parallel importers, refusing to help them if they have any queries regarding the legitimacy of overseas-sourced products, for example. The basis of the animosity is that when an imported CD is purchased in Australia, the profit is recorded by the affiliate in the place of manufacture, rather than here.
Parallel imports are unavailable in the Australian digital market, however. Australian consumers can’t buy downloads from iTunes or Wal-Mart in the US, which are often cheaper than downloads available here, without a US-issued credit card.
And restrictive licensing conditions imposed by copyright owners also limit the sale of digital downloads across international borders. For both reasons Australian consumers miss out. And retailers cannot buy downloads from overseas and resell them here, even if it is worthwhile for them to do so.
In a recent analysis, the prices of Australian-made CDs of artists such as Bon Jovi, REM and Robbie Williams were compared to those of legal parallel imports. It was found that the local product was as much as 300% more expensive.
If these savings were available in the digital market, consumers would be paying as little as 67 cents for a digital download, instead of the $1.69 to $1.89 a track they pay at present. Similarly, consumers could be paying as little as $6.91 per digitally downloaded album, instead of the present $17 to $20.
This isn’t the fault of retailers. Prices for digital downloads are based on wholesale prices, and are determined on a territorial basis by record companies based on their perception of what each market can bear. This differs from the market for parallel import CDs. If a record company’s legitimate CDs are cheaper overseas, they can be imported and sold here. Australians can order CDs online, or purchase CDs while on a US holiday, but they cannot make the same sort of purchases digitally.
As a border-free environment, the internet was supposed to bring down market barriers. But record companies use the internet to create boundaries and increase protectionism in the market for sound recordings, to the detriment of consumers.
The digital revolution has been used as an excuse to wind back the clock.
Nor is this a uniquely Australian problem. Because record companies have repudiated the global nature of the internet, consumers worldwide have been forced to pay too much for music downloads, and their choices have been limited.
When will parallel-import laws be extended to the digital market, so that Australian consumers are finally charged a fair price for downloads?
Throughout the world, how much have consumers been overcharged for digital downloads as a result of this imposition of geographical boundaries on the internet? Where have these excess profits gone?
Years ago, the record companies carved up the world market for CDs to maximise profits. When Australia rejected this move by turning to digital technologies, the record companies weren’t perturbed. They simply carved up the global market for digital downloads in a similar manner. Competition was reduced, and the song remained the same.
Alex Malik – p2pnet
[Malik is a music industry commentator and academic researcher at the University of Technology in Sydney. He's presently finishing his PhD in law.]
April 28th, 2006 at 4:08 pm
There is a good reason, other than to prevent competition, why imposrts are bad for record companies and their cousins (who are frequently another division, the publishing division) of the record company.
It is royalty cutting.
Lets say an American recording is manufactured in Australia. The record company then pays songwriter royalties to an Australian publisher. That publisher cuts a share of the royalties (usulally 50 percent) before sending the royalties to the American publisher, who then cuts another 50 percent before paying the songwriter.
Put differently, two cuts of 50 percent (67 percent when combines) are better than one cut of 50 percent. Also the accounting process in Australia for the record company and the publisher are farther away from a possible audit by an American songwriter. As a result the audit of foreign record companies and publisher are de facto impossible to do. When audits are impossible corruption seeps in and no one can be caught at it.
That it, more royalty cutting, fewer audits and more corruption.
Rafael Venegas
http://www.gvenegas.com