Critical Consumer Pat Sidley
SOUTH AFRICANS who buy compact discs know prices are much lower in the United States and hope against hope that they will drop in this country. But there is no price relief in sight.
British consumers, in much the same boat as South Africans, have just had their hopes dashed by the Monopolies and Mergers Commission (MMC), the British equivalent of our Competition Board. The MMC reported recently that although there were monopolies in the industry, and restrictive trade practices, these did not affect consumers adversely.
South Africans face the same restrictive practices, similar circumstances regarding monopolies, and some added problems. These help to keep prices more or less where they are — high.
In this country, three major recording companies own the only CD-manufacturing plant. They are EMI South Africa, Tusk and Gallo. Gallo’s profits go to the same shareholders as those of several retailers. Among them are CNA and the OK Bazaars, both of which are — along with a large portion of Gallo — ultimately owned by Anglo American.
But another major problem is the restrictive practice this country has in common with the United Kingdom and several other countries: copyright law prohibits parallel imports.
This fact dominates many industries in South Africa. Parallel imports occur when a retailer or wholesaler decides to import goods because they are cheaper than locally available but otherwise identical products. The electronics, drug and music industries, among others, are affected. It means the much cheaper CDs available in the US cannot be imported to retail at a lower price than the identical ones available here.
This situation exists, according to industry spokesman Des Dubery, because the protection of intellectual property — or copyright — is at stake. The intention is to protect the artists and creative people who put the disc together. This protection is carried out by means of licensing agreements with recording companies (there are five or six major ones in the world) which are arranged territorially.
When an artist and a company — for example, George Michael and Sony — are locked into an agreement, Sony markets its CDs in this country by giving a license to a local representative recording company (Gallo) to sell the CDs. The fees are collected by the representative and remitted to Sony’s headquarters with a bit going to Michael.
When an international company has its own representative here, it does not mean the price goes down. Somehow the license fees make up the difference.
According to Dubery, who represents the Association of the South African Music Industry (Asami), international companies charge a premium because the South African market is so small. (It seems the big international customers are making extra bucks at our expense when they don’t really have to.)
The territorial licensing system prevents anyone else from importing cheaper (not pirated) George Michael CDs from the US or other countries because it is a breach of copyright.
The Consumers Association in the UK believes that if the copyright laws were changed, CD prices would drop. This view was upheld in 1993 when a House of Commons Select Committee held hearings into the issue, but was rejected by the MMC report released at the end of June this year.
This view is also rejected in South Africa. Duberry says the logical outcome of such a policy would be that consumers would not benefit because a much smaller selection would be available.
One of the largest markets at the moment is the production of CDs featuring recordings previously available only on tape or vinyl. And this is where the bargains are to be found. This is not surprising as the artist, the recording company and several other stakeholders have already been paid for their work.
When the MMC’s report was released, The Guardian showed that from the sale of a CD, the artist would get a mere 6,8 percent of the retail price. The lion’s share was taken by the record company (36 percent) and the retailer received 25 percent. Even the tax man took more than the artist (VAT is 17,5 percent in the UK).
Dubery says there are some differences in South Africa. VAT is lower here, but a further portion of the price would be accounted for in ad verlorum taxes.
Copyright affects only a portion of the cost of the disc, apparently not an easily quantifiable part if the industry’s reluctance to disclose information it is anything to go by. It seems that anything from 15 percent would be affected by copyright provisions.
Consumer interests could be affected by discounts within the industry. Record companies give discounts to retailers who push large volumes, but these are seldom passed on to consumers.
Dubery confirmed that in South Africa discounts were based on large volumes, but could not pass on any other information or detail about discounts.
In the case of Gallo, it would presumably give CNA larger discounts (as the main retailer of CDs in the country) than it would give CD Warehouse, an independent company. The situation looks worse when it is noted that CNA and Gallo are in the same stable.
And while this critical consumer cynically noted that discounts were not always passed on, Dubery said consumers did not feel the benefit of some parallel importing.
What’s new? Somebody risks breaking copyright law to import CDs cheaply and consumers still lose out. One supposes this is the reason prices are kept up.
A CD which costs around R80 here costs a similar amount in the United Kingdom (about UK pounds 15) and in Holland. But in the US it would cost R54 or less.
The differences are accounted for in “economies of scale”, if one is to believe the local and UK industries, which have a lot to protect in their present pricing policy. The industry in both countries fails to cite the fact that in the US anti-trust legislation makes it difficult for monopolies and restrictive trade practices to exist.
The Consumers Association says in the current edition of its Which? magazine that the MMC “ducked is responsibility to defend the consumer”. The CA says the report was “astonishingly complacent and misguided”. Its policy director, Stephen Locke, calls it “yet another weak and muddle-headed report”. The losers, he remarked, would be consumers.