Despite a drop in import duties, do not expect to see a decrease in the price of CDs, writes Glynis O’Hara
IMPORT duties have dropped significantly since the Budget, but most CD retailers don’t intend to pass the saving on to consumers just yet.
Customs and Excise in Pretoria says import duties have been reduced by 40,5%. An 18% import duty has been done away with altogether and an ad valorem [luxury] tax of 37,5% has been reduced to 15% of the invoice price at customs. The music affected is mainly classical and jazz, with a smattering of world and pop music.
Imported CDs constitute about 5% of the turnover of major companies like Polygram, Sony, EMI, BMG and Tusk, and with the entire South African music industry’s turnover in 1996 at R585,5-million, 5% is worth around R30-million, a not insignificant sum. (The majors constitute about 80% of the market.)
But the import cuts have yet to affect the retail market.
“Some of the majors haven’t had a price increase in four years, so to make it cheaper now would be crazy,” said Leonard Beroslsky of the huge Compact Disc Wherehouse in Johannesburg. Most of his classical music, a speciality of the shop, is imported through the majors, he added.
“The retailer is unfortunately always perceived as the bad guy,” said Look & Listen’s MD Howard Lazarus, “as he’s at the coal-face with customers. But if it comes in cheaper, it will go out cheaper and we’ll all sell more CDs.”
At least one small independent distributor/importer, Tic Tic Bang, says it is time to pass on the cuts and reduce its prices by 12%.
Steve Freeman, financial director of Polygram, said his company didn’t envisage a drop in prices. “We haven’t had a price increase in 18 months and in that time the rand has devalued 25%. So by not having a decrease we have a small profit margin, before that we were virtually breaking even.”
Steve Peckham, financial director of EMI, said the ad valorem tax was calculated on only a small percentage of the cost of the import, and the effect would thus be small. However, John Wolfaard of Customs and Excise in Pretoria said the tax was calculated on the full invoice price of the item.
There would be some reduction, said Peckham, but he couldn’t give an across- the-board amount. “It depends on what price the customer is prepared to pay, what the exchange rate is and how well that line is selling.”
The drop in ad valorem tax has had a minimal effect on the retail price of locally pressed CDs – a drop of between R1 and R1,44. This is because the tax, as it is applied internally, is calculated only on the material cost of the CD, which is very low, in the region of R4 to R6, according to sources. This is one of the reasons why it has been cheaper for the majors to get a licence to manufacture international artists on local CDs.
Once a CD leaves the factory, its price includes all sorts of other costs – payment to the performers, package designers, publishers, studio costs, promotion, the record company’s overheads and so on.
With no decrease on the cards from most importers and a great deal of confusion out there as to what the cuts mean and what their effect will be, it will be interesting to see if other items affected by the drop in ad valorem do start going down in price – perfumes, cosmetics, film, leather clothing, VCRs, cameras, cassette and record players and cinematic equipment to name a few.
In March, Morkels MD Edwin Rohrs said his company would pass on the savings to its customers.
One would hope every industry affected does so.