Buyers find cheaper music online

Irish consumers are turning to the internet in their thousands to help them get better value than music prices in high-street stores, writes Jamie Smyth, Technology Reporter

Frustrated at paying prices of up to €25 for the latest compact disc releases in Ireland, new figures suggest punters are increasingly using the Web to buy music cheaply or download it for free.

New statistics gathered by the Irish Recording Music Association (IRMA) show that unit sales for music slumped by 10 per cent during 2003, continuing a recent downward trend for CD sales.

Irish-based music companies shipped 9.2 million CDs, records and cassettes in 2003, compared to 10.2 million in 2002, and more than 11 million units during 2001.

This decline in unit sales has been accentuated by an even steeper fall in the value of music sales, as the industry is forced to reduce prices in the face of stiffer competition.

Irish companies believe the value of music sales has fallen by about 20 per cent in 2003, according to provisional IRMA figures, which show total 2003 sales at €108.7 million, down from €135.9 million in 2002.

"This is a very disturbing trend for the music industry," says Mr Dick Doyle, director general of IRMA. "The haemorrhaging of sales in this manner is undermining the industry's ability to invest in new talent."

Contrary to the situation in the US where illegal downloading of music has seriously affected music sales, increasingly it is online retailers that are hurting Irish sales.

One of the biggest problems for music firms such as EMI, Sony and Universal is the emergence of a new breed of online retailer that can source music cheaply outside the EU. One of the biggest of these operations, Hong-Kong-based CD Wow, has set up a host of European websites offering CDs and DVDs at a fraction of the cost of a typical high-street store.

Mr Doyle estimates that the firm's Irish site, www.cdwow.ie, is now generating annual sales worth between €6-10 million from Irish consumers. He is also convinced that CD Wow is breaking European law by engaging in the practice of parallel importing - where genuine goods from outside the EU are imported into the area without the copyright owners' consent.

IMRA recently followed its British counterpart, the British Phonographic Industry, by suing CD Wow for damages.

The British case is scheduled for hearing in the British High Court next month and will set a legal precedent that could either shut down CD Wow or enable similar offshore firms to sell CDs, DVDs and games, cheaply on the web.

Mr Philip Nolan, a solicitor with the Dublin law firm Mason, Hayes & Curran, says the cases could go into uncharted legal waters because they would probably deal with copyright law.

"Most of the case law in the area of parallel imports has dealt with patents or trademarks," he says. "There is a chance it could be referred to Europe which would mean a long delay."

Mr Philip Robinson, the British co-founder of CD Wow, says he is confident of success in the British case.

"We buy from all the major record companies and we use the fact that they don't have a unified pricing policy to our advantage," he says. "We do also buy some music from the UK; it really depends on what is in the charts and where it is actually available."

CD Wow will argue in court that management at the British record companies' overseas subsidiaries have agreed to the sale of the music, making it legal to import them into Europe. It will also argue that the goods actually change hands in Hong Kong at the time when the CDs are posted to European consumers.

"We feel we have a very good argument and in my heart I believe we have the moral high ground... many of the record companies simply just want to keep the prices high for consumers."

Mr Robinson will be hoping his latest venture avoids the fate of his previous music company, Tring International.

Tring, which was founded in 1994 as a budget music retailer, collapsed after it was sued by several music labels for allegedly infringing their copyright on its budget releases.

The stakes are high for CD Wow, which is estimated to have generated revenues worth about £100 million in 2003 and employs about 100 staff. But the court's decision will also be followed with interest by thousands of Irish people who use its website.

Attracted by discounts of up to €10 per item, thousands of Irish punters are buying from the firm Most have learnt of the website by word of mouth as the firm does not spend on advertising.

But CD Wow's sales have also been boosted by an agreement with Esat BT's internet service provider iol.ie, which links its customers directly to its website.

Most consumers have little sympathy for the big music firms who are losing sales, according to Mr Demot Jewell, chief executive of the Consumers Association.

It is hardly surprising that consumers are using websites or downloading music because of the high price of CDs in Ireland.

"If the record companies brought the price of CDs down to a fair and reasonable level then they would be able to eliminate piracy for good. Ultimately the firms would be better off."

But there is little sign of compromise within the music industry. This week it emerged that the British Phonographic Industry body has begun an investigation into Amazon.com, the world' biggest online retailer. The body is checking whether Amazon is similarly buying CDs outside the EU and then reselling them at low cost to British consumers online.

It is also stepping up its legal pursuit of people who illegally download music using file-sharing software provided by sites such as Kazaa or Morpheos.

The Recording Industry Association of America (RIIA) recently sued up to 400 people, including a 12-year-old girl, who were engaged in illegally swapping music files on the internet.

Similar prosecutions pursued by music bodies are expected to be made in Europe over the next few months, says Mr Dick Doyle, director general of IRMA.

Surveys conducted by the RIIA show that before the litigation, just 37 per cent of Americans believed file-sharing was illegal. This rose to 64 per cent following the RIIA sponsored suits.

The low level of broadband penetration in the Republic - currently just 30,000 DSL lines - means that illegal downloading of music is not yet a big problem.

But IRMA is not sitting on its hands. It plans to contact a thousand firms and universities this month to warn them that it will prosecute them if staff download music illegally.

The music industry is also trying to convert consumers to using legal download sites, such as Apple's iTunes, before its business is irreparably damaged.