The Grey Market - imports and the UK music industy
"The grey market" – thats how the UK CD market is slowly killing itself. Or so the record companies would have you believe. Maybe you’ve not heard of it, because as a general rule, unlike Napster, the public don’t get involved in it. But nonetheless, it exists and as far as the record companies in the UK are concerned it’s as big and as dangerous as Napster. Because it sells records, but they don’t sell records. Now, that sounds like a contradiction, but its true.
Have you ever been into HMV or any of the other chainstores lately? Yep, you’ve picked up the album you’re interested in, its usually 16.49. 16.49 for a recent release, unless its in the top 40 of course, then its probably 13.99 or 12.99. Maybe if you’re lucky, you’ll get it for 11.99. Then you think, Ok, I’ll check out my independent shop. There its 9.99. Sometimes you get more, much much more. Like a bonus 8 track CD, or bonus tracks. For cheaper, much much cheaper. Ever wondered why?
It’s the grey market. That’s the industry term for it. “Parallel imports” is the polite phrase. And since 1991, there’s not been a single thing the British Phonographic Industry or the English record companies can do about it. Since the restriction on importation of goods from Europe and the opening up of the so called “free” market, retailers and distributors can now legally buy products from anywhere in Europe at no penalty. Some distributors specialise in cheap imports from Europe, where they can obtain the same CDs’ cheaper and more effectively than ordering from your UK multinational like EMI or Warner Brothers. For example one parallel importer had the last prodigy album “fat of the land” shipped into the UK and delivered on the day of release to retailers after it had been officially out for less than an hour, all the way from Holland. In 1996, the Spice Girls CD was selling at 12.99 in chart shops, but the cost for shops to buy them was £9.12 without VAT, and with VAT that would be £10.71, meaning you make about £2 return. If you as a retailer you had the chance to lower your costs, and provide the same product, you would, so when import companies offer parallel imports for 2 pounds cheaper or so, parallel imports thrive.
The thing that hurts multinationals the most is that in different countries, different companies own the rights. So the UK company will spend hundreds of thousands on making videos and building a band up, and then their profits - when the CD you buy is a parallel imported from Europe - goes elsewhere. And the British company have lost out. And that is their main worry.
You see, the reason why CD prices in the UK are much much higher than other countries are threefold. At first, the artist royalty rate was reduced and the price artificially high in the early years of CD – 1985, 1986, 1987 – due to the high cost of production because of smaller production quantities. The British countries continue to use this as an excuse due to the smaller demographic in the UK rather than the US, which is approximately five times larger, and thus has larger CD production capacity and therefore is cheaper. . The other reason, which is unspoken in the industry, is the top heavy investment in British artists.
Quite simply, a disproportionate quantity of artists which are deemed to be salesworthy in Primary Markets (Northern Americas, England, Western Europe , Japan) are English speaking. The majority of artists are signed from England and America, and thus the majority of investment – particularly in the international marketplace such as the USA, is in artists from these countries. Now, like any business, there is intense competition and business targets for separate divisions, and the UK arms of these multinationals – like the European arms – are no different. However, In the UK, with increased expenditure and outlay due to higher numbers of artists coming from the UK compared to the larger US market, and combined with the immensely high costs of developing an artist (is it true that EMI spend £1.5 million on plugging Girl Thing?), then this obviously affects profits. And when CD sales coming from the UK promotions budget go to foreign companies, as they do when you buy a parallel import, it bites the industry. Which is not to say that we shouldn’t buy cheaper CDs or to justify high prices of CDs’, but it is to try to explain why it is. And as far as the English divisions of companies are concerned, this means less money to invest in new acts. That is what leads to regular culls of unprofitable acts in the UK, like Shola Ama, Cleopatra and Simply Red did when they were dropped recently.
This is why, recently, British branches of companies have started to be sneaky, started to adopt tactics for abroad. If you’ve ever been to Japan, Japanese record companies have a similar problems due to an exorbitant amount of tax on domestic (ie Japanese originated product). Simply, In Japan, it is cheaper to buy an import CD than to buy a Japanese CD, due to bizarre laws on duty and domestic product taxes. So to prevent everyone in Japan buying imports, the Japanese companies use bonus tracks, exclusive CDs and so forth as an incentive to keep the customers buying Japanese. This is why, for example, Japanese CDs’ have bonus and often exclusive tracks: Blurs “13” in Japan, features an exclusive track never released anywhere else, and well as Blur having released 3 exclusive Japanese only albums. Green Day have issued a number of exclusive only live EPs in Japan (the tracks of which normally end up as B-sides in the UK), Madonna, Michael Jackson, Machine Head, Metallica, Slayer, Utah Saints…the list is virtually endless. Often Japan gets exclusive compilations, live albums or live b-side compilations, and all sorts of extra marketing gubbins designed to make the punter part with his hard earned cash.
Now, with the issue of parallel imports in the UK, the UK companies have cottoned on too. Ever since the UK record industry realised it was legal to reissue albums as double CD sets with bonus material and remain chart eligible, in order to get the die hard fans to purchase these CDs’ again for the extra exclusive material, to push their artists in the charts and create extra revenue, they’ve been milking fans for every penny we have. This year we’ve had the notoriously reclusive Leftfield do it with their entire back catalogue (all 2 albums), and Moby too – and how Moby has continued to exploit his album is phenomenal, and that’s another article in itself. But nonetheless, as long as the fans are treated like cash cows and as long as we continue to do this, then it will continue to take place.
And the majors are scared. Very scared. They know exactly how dangerous and threatening the whole issue of parallel imports is to their profit margins. So much so that - like in Japan - the UK editions of albums , and specifically two of the most expected, so called biggest albums of the year - deliberately include "international bonus tracks" in order to stop these parallel imports. The new Limp Bizkit CD, for example, includes the cross over hit "Take a look around" - in the UK only. It doesn't seem like anybody is immune, now matter how big the band. The new U2 album includes a bonus track, for the UK only. The manager of U2 Paul Mcguiness states that he feels it should not up to record companies to meddle with how aritist choose to present their work, but states that the band - the major attraction of Island, and one of the most powerful bands in the world - have been overruled, have been bulldozed by their record company into submission and forced to add a bonus track ("The ground beneath her feet", also on their Million Dollar Hotel Soundtrack) to their new album in the UK only, to help stop parallel imports.
Thats not the only way that the UK companies have tried to bite back against the grey market, realising they had no legal way of stopping shops from buying parallel imports. The UK majors tried by refusing to issue discounts to shops who bought parallel imports and by refusing to issue point of sale material, instore promotions, and advertising material. Ultimately though, the UK companies realised that they were on a losing battle, because all it meant was that the shops would buy parallel imports nonetheless whether they had sales material of not. The UK companies decided the best thing to do was not to sour their relationship with retailers before it was too late. And it wasn’t just small retailers either. When HMV started to use parallel importers in 1997 (for example, ordering a load of copies of the Titanic soundtrack from Italy), the majors realised they had lost the battle. All they could do was fight a rearguard action. In the US, Companies were so paranoid about their bottom line that Garth Brooks even began a campaign to stop having his CDs’ delivered to shops who also sold secondhand CDs, claimign that these stores are robbing him of his livelihood, which fizzled out when he realised what an idiot it would make him look.
Ultimately, it is you who pays the price when the majors decide they are going to exploit the market. It is widely recognised that CD prices are too high, and until the majority of the population decides to stay away from HMV and buy Online. A commons committee less than 5 years ago launched an investigation into CD prices, and then concluded that – despite the fact that CDs’ in the UK were often up to 66% more expensive in the UK than the USA – than the prices were fair. The only way then, is to affect these major multinational companies were it hurts, and where they fear. Avoid HMV, Avoid Virgin. Shop at your independent. They are normally cheaper. And if anyone’s gonna be supporting parallel imports, it going to be your local independent. In doing so, the Major labels will realise – sooner or later – that we are living in a global village, and that realistically, they will have to operate as retailers do – buying and selling on a global basis. They will have to get past the idea that the UK music industry is a loss leader due to high amounts of artist investment, and realise that only by lowering prices will they solve the problem. Revenue will flow back into the UK divisions of the companies, fanbases will increase, and gross profits will not decrease doe to higher overall sales, leading to an overall resurgence in the UK music industry. Until these companies realise this, and face the future of MP3 technology – they will simply overprice themselves out of the market, like the dinosaurs they are. The future is here, and they can’t change it. They have two choices - adapt and survive, or protest and suffer. Its up to you to make the difference.