The trials and tribulations of importing music into the UK.

Amazon and CD WOW are the subject of these two articals in today's FT, both are related to the importing music into the UK.
These cases should be worth following as they may well have some say in the price of CDs in the future.

FT.com | FEATURES: Internet retailer prepares to face the music
FT.com | UK music industry probes CD sales by Amazon.com

I have included the links and text as sometimes the FT links mutate into "subscription only" links.

Auric

UK music industry probes CD sales by Amazon.com
By Richard Milne in London
Financial Times; Jan 07, 2004

Amazon.com, the world's biggest online retailer, is being investigated by the music industry over possible illegal importing of CDs into the UK.
The British Phonographic Industry, a trade body, is in the early stages of seeking to find out whether Amazon.com breaches copyright law by selling CDs to UK consumers - so-called parallel importing. It is not concerned with Amazon.co.uk, which the BPI has separately concluded does not import CDs illegally.
The news comes as the BPI prepares to fight its highest-profile illegal importation case so far, against CD Wow. The Hong Kong-based retailer has become one of the internet's biggest success stories, turning over an estimated £100m last year
The BPI's lawsuit - which is due to be heard in the High Court next month - alleges that CD Wow imports CDs bought outside the European Economic Area - predominantly from Asia - into the UK and sells them for less than traditional retailers.
It has also issued legal proceedings against Play.com - another leading online retailer of CDs - which is based in Jersey.
The investigation of Amazon and the two legal actions represent the music industry's first large assault on parallel importing, a practice whereby genuine goods are bought in one country, usually more cheaply, before being imported and sold in another without the copyright owner's consent.
It also highlights the widening spread of parallel import actions following Levi-Strauss's successful court action against Tesco for selling jeans bought in eastern Europe to its UK customers.
A person who is close to the BPI said yesterday: "The BPI is looking at Amazon.com. If the product the UK consumer buys is from the US, we would have to look at that carefully. Potentially they are acting without the consent and authority of the UK record companies."
The BPI views CD Wow's alleged activities parallel importing as more serious, as its website is aimed at UK consumers - unlike Amazon.com, headed by Jeff Bezos, which is primarily for the US market.
Patty Smith, speaking on behalf of Amazon, said: "We are not aware of any action the BPI may or may not be taking. We clearly respect copyright laws in all the countries we operate in."
Philip Robinson, director of CD Wow, said: "We have got consent [from the record companies] and change of ownership takes place outside the UK. There is a huge difference between us and the Tesco-Levi case."
Play.com said it had reached agreement with the BPI, a claim denied by the BPI.


Internet retailer prepares to face the music
By Richard Milne
Financial Times; Jan 07, 2004

CD Wow is a boon to consumers. Tired of paying over the odds for compact discs, music buyers have been flocking to the website in increasing numbers since it was set up in 2000. In the UK, the key to its popularity is a single flat-rate price of £8.99 for albums - about £4 cheaper than the average price in British high streets - with free delivery. Some are even cheaper, with Dido's Life For Rent - last year's best-selling British album - selling for £6.99.
Operating across the world but with a focus on the UK, German and Australasian markets, the Hong Kong-based business is estimated to have had a turnover of about £100m in 2003. Having spent barely a penny on advertising, it has weathered the technological meltdown of the past few years to emerge, seemingly, as one of the most successful dotcoms.
But for the record industry CD Wow is a company built on a flawed, not to say potentially illegal, business model. It is able to sell CDs so cheaply because, on its own admission, it sources its products from a variety of countries, predominantly in Asia, where prices are low. This enables it to undercut traditional retailers deeply when it then imports the CDs to the UK and elsewhere.
The record industry is furious, arguing that CD Wow is engaging in parallel importing - where genuine goods from outside the European Economic Area (which consists of all 15 European Union countries, plus Liechtenstein, Iceland and Norway) are imported into the EEA without the copyright owner's consent. "We take a very, very dim view of parallel importing," says a UK executive at one of the five main record labels.
Soon the record industry - through its trade body in the UK, the British Phonographic Industry - will put its anger to the legal test. The British High Court will next month become the battleground for the highest-profile parallel importing case since Tesco, the UK supermarket chain, sued Levi Strauss over its ability to sell cut-price jeans.
For the record industry, it is an attempt to stave off the radical effect of the internet, which allows consumers to buy CDs from across the world. But is their strategy of legal enforcement, which risks alienating their customers, the right one?
The heart of the record industry's case is that, under UK and continental European law, products bought outside the EEA can be imported only with the copyright owner's consent. The European Court of Justice decided in the Tesco case that such consent could not be implied and had to be "unequivocally demonstrated".
In this case, the ECJ relied on intellectual property doctrine of "exhaustion of rights", says Richard Kemp, a lawyer at Kemp Little. It reaffirmed that goods put on the market outside the EEA need the right-holder's consent to be brought into the EEA. But, once they are, the right-holder cannot object to any future resale.
Mark Blair, lawyer at Marks & Clerk, says the Tesco case made the situation under trademark law very clear. But the BPI is bringing its case under copyright legislation, which has been used in far fewer parallel import cases. Independent lawyers say this should cause few problems for the record industry but that the scope for the decision contrary to that in the Tesco case is magnified.
For the record industry those copyrights are all-important. Simon Baggs, a solicitor at Wiggin & Co, the BPI's lawyers, says: "The music industry, just like any other content industry, relies first and foremost on its copyrights. It has to act because at the moment the record industry's position in the UK is being completely undermined."
Philip Robinson, CD Wow's chief executive, says the legal action will be vigorously defended. "I would not have set the business up if there was something intrinsically wrong with it," he says. However, his critics point to the copyright problems he suffered with a previous company, Tring International, the budget music business.
He says CD Wow's case has two main thrusts. First, it has received consent from the record companies to sell the products. "We have consent from the senior management in these companies," Mr Robinson says. Independent lawyers point out, however, that such consent must come from the copyright holder itself - in this instance the UK record company and not its Asian subsidiary - and must relate to the selling of CDs inside the EEA. "Consenting to the goods being put on the Hong Kong market is not the same as allowing them to be imported into the UK," says one London-based lawyer.
CD Wow's second argument seeks to overcome that objection by claiming that it does not import anything - ownership changes hands in Hong Kong with the consumer then personally importing the CD. Another independent lawyer says that this argument has little merit: "With the website cdwow.co.uk, they clearly are selling to consumers in the UK. It's just semantics to say otherwise."
Mr Robinson is, however, perplexed that the music industry should be pursuing a company that it concedes is buying genuine products and paying artists their royalties. "At the end of the day I can't see it as being in anybody's interest to sell less product." He says that if CD Wow loses the case it could source all its material from inside the EEA but he is keen to focus on the rest of his business rather than the legal action.
The UK accounts for about 40 per cent of CD Wow's turnover, he says, adding that a loss in the case is "important, but it's not life- threatening". Instead, he is ploughing his energies into the global expansion of CD Wow and his new venture Wow Woman, based on similar lines but offering cut-price cosmetics, lingerie and jewellery. As with CD Wow, he is establishing the brand with no advertising but extensive cross-marketing deals with banks and credit card companies.
The strategy with both brands is to keep margins tight (50p-60p for the average CD) and stock turnover high (CD Wow turns it about 27 times a year).
The BPI says its aim is not to close CD Wow but merely to stop its alleged parallel importing. "There is no suggestion that UK consumers should lose out," says Mr Baggs of Wiggin & Co. "It's only that CD Wow directors should make less money and take smaller margins." He adds that he foresees little difficulty in enforcing any judgment the BPI might obtain against CD Wow despite its base being in Hong Kong, as both Mr Robinson and a customer services branch are based in the UK.
But Mr Robinson is still perturbed at what he sees as the victimisation of CD Wow. "I'm very worried about Amazon and they are not [pursuing] them," he says. But the Financial Times has learnt that the BPI is looking into whether Amazon is breaking UK law when it sells CDs from its amazon.com website to UK consumers.
The investigation began late last year and people close to the BPI say it is at the stage of making test purchases to see if the CDs are being illegally imported. Patty Smith, director of international PR at Amazon.com, says the company is unaware of the probe but respects copyright laws wherever it operates.
The BPI also points to the legal proceedings it has issued against Play.com, a Jersey-based internet retailer. It is understood that Play.com is close to settlement over the matter, which will entail it sourcing all its CDs from within the EEA.
Lawyers question how advisable a strategy it is for any industry to use national laws to clamp down on internet retailing, which by definition is an international activity.
Richard Kemp at Kemp Little says that, in the internet age, whether to allow the public to buy goods from around the world is fundamentally a business question rather than a legal one. "[Litigation will cause] massive interference on the freedom to contract. Is the answer to the question to align prices around the world or is the answer to have 10 years of litigation? It's not really a legal issue at the highest level."
Another lawyer from a leading international firm contrasts record companies with pharmaceuticals companies, which have also faced huge numbers of parallel importers seeking to take advantage of different prices around the world.
"Differential pricing works for pharmaceuticals companies. But it doesn't for CDs," he says, adding that consumers could turn against the already unpopular industry. "Victory in court for the music industry could turn out to be pyrrhic."
THE SHORT AND UNHAPPY CAREER OF TRING INTERNATIONAL
Tring International, the former company of CD Wow chief executive Philip Robinson, is a by-word in the music industry for how things can go wrong. The budget music company, which listed its shares in London in 1994, collapsed four years later under a welter of copyright litigation.
It was sued by several record labels including MCA, Polygram, K-Tel International and EMI Music for allegedly infringing their copyright on its budget £2.99 releases. Although many of the actions were defeated, Tring paid EMI £20,000 ($36,000) in settlement and the numerous lawsuits and cheap compact discs made it unpopular with the industry. But infringement of copyright was not the only problem Tring and Mr Robinson faced. At the heart of its woes was a string of incidents involving poor shareholder communication. Its share price halved in a week in 1995 after it issued a profit warning with little indication as to why.
There was even a soap-operatic twist at the top as Mark Frey, a school friend of Mr Robinson and the co-founder of Tring, tried unsuccessfully to oust him as chief executive. Matters came to a head in 1998 when shareholders rejected a refinancing proposal, then the stock exchange rebuked Tring for failing to gain shareholder approval for the sale of its headquarters. Mr Robinson resigned in August 1998 to facilitate a reverse takeover by music promoters Harvey Goldsmith and Raymond Gubbay but three months later the company was in administration. Today, Mr Robinson views Tring as offering a number of lessons. "Don't float again," he says is the main one, adding that he found it difficult to juggle the often competing interests of shareholders and management. As for the view that history is repeating itself with CD Wow, he is adamant: "It's absolutely, completely different," he says.

 

Interesting stuff!

I always get CDs from the HongKong CDWow site, paying in HongKong dollars, I wonder if it then becomes any easier for them to argue change of ownership in HongKong? That argument does though still sound like a slightly dodgy technicality though.

 

...Dido's Life For Rent - last year's best-selling British album - selling for £6.99.

So. By dint of having immaculate musical taste, I'm seven quid better off. Is that all it's worth?

Did anyone else think it was cruel to send those poor dogs into space? And what does Fatima Whitbread know about literature?

 

Thanks for that, Auric. Parallel importing is a major minefield, which seems (in my view) to be in the process of resolving itself the wrong way, i.e., in favour of those who want to keep prices high. The decisions in the Silhouette case (where the Austrian manufacturer of high-class spectacle frames was able to stop the reimportation of genuine, non-current stock by a trader who had legitimately acquired them) and then the double decision of Levi Strauss v. Tesco/Davidoff v. A&G have both been victories for the plaintiffs wanting the parallel importing stopped.

As the articles point out, these were trade marks cases, but I don't think that the fact that this is copyright legislation will make much difference - although I would like to think that it would! Sadly, the exhaustion of rights argument will almost certainly not fly. The recording industry, rightly or wrongly, sees itself in a crisis and can be relied upon to fight its corner very hard.

 

Parallel importing, transfer pricing, WTO, EU, accountans and lawyers . . . no wonder this is such a minefield.

Auric

 

If the record companies didn't fix prices at inflated levels (did someone say cartel?) for the EU market then there wouldn't be a problem with parallel importing (or a need for it) .

Michael.

 

Ah but the Commons Select Commity said we weren't being ripped off, so we're not are we? Nice backhander from the music industry, much...

Well, 101cd.com isn't on the list (but then they take 6 years to deliver anything anyway) so if they stay around...

Rest assured that if prices go up and the web buying is stopped, I'll be stopping my music purchasing forthwith. Most modern music is shite anyway, and at least psy-trance from Transient/Chaos won't be subject to this cartel.

EMI/Sony/etc - what they hell have they released that's really good recently? OK, stuff like Dido is good, but they waste all this money on crap like LibertyX - tarted up karaoke acts. They should get the A&R people out looking at ugly bands who can play their instruments - just like in the 70s.

If EMI (it was EMI wasn't it!?) hadn't paid that prat Robbie Williams a small country's yearly GNP for a non-fixed contract they for one wouldn't be in a mess now would they?

Come back grunge/britpop - all is forgiven.

 

Just had this email arrive in my in-box from CD-Wow:

 

Damn.

I wonder if there's just a chance that buying via the HongKong site will get round this problem. The words "straws" and "clutching" do rather spring to mind though.

 

Of course, if you had them deliver your stuff to me in non-EU Switzerland, I'd be happy to forward it on to you - for a small commission, of course...

 

how much commission? £1.99?

 

More info. here:

http://news.bbc.co.uk/1/hi/entertainment/music/3416437.stm

 

If CD-WOW's normal price is now £10.99 instead of £8.99 then it's hardly worth risking the vagaries of it's delivery schedule when you can get the same price at Amazon...

IMO the law sucks in that respect. Why they can't sell legally bought and non-pirated CDs into a different market I don't understand and no one will ever convince me of it's merit

Michael.

 

And in the UK for chart stuff places like Sainsbury's selling them at £9.99 is actually going to be cheaper. Assuming that doesn't change... CD-WOW will seriously suffer as a result of this ruling IMHO.

 

Thanks for a very interesting relevant and informative thread!

My long view on this is that you cant fight the internet.

Their success will criple UK sales for cdwow, but you, I and other music buyers will merely use one of the many alternatives.

They cant impede the inevitable progress of global internet purchasing by a lawsuit against one dotcom.

 

what if cd wow sold '2nd hand' cd's i.e. they'd bought them taken the wrapping off and split the security tag (if there was one) and then sold them. would that still come under the idiotic legislation that's forced the price rise... would anyone mind not having to unwrap their cd?

cheers


julian

 

TBH most of the CDs I got from CDWOW weren't wrapped and didn't have security tags on them...

 

Was it all a dream after all..?

Received this email from CD-Wow this morning:

 

Seems like we could take out our credit card and spend again.

Long live CD Wow and sensible pricing. :banana:

 

It's great CD-WOW have got back to their £8.99 pricing. They do though, as of this morning, seem to have closed the price differential between the UK and HK sites. Last night I looked following HenryT's post, and on the HK site the standard chart price was $105. This morning I go back, armed with credit card, and find they've gone up to $125, making them effectively £8.99. If only I'd had my credit card last night. Oh well, I went ahead and ordered Joss Stone's CD anyway. Mustn't grumble, £8.99 is a good price .