The precedent-setting decision by five big record companies last month to stop the practice of imposing a "minimum advertising price," or MAP, on CDs raises the question as to whether the Federal Trade Commission will now turn its attention from music to home video in its investigation into price-fixing.
FTC chairman Robert Pitofsky, Washington, said industries with similar pricing requirements could look forward to similar investigations by antitrust enforcers.
Quoted in the Wall Street Journal May 11, Pitofsky said the FTC would look "with great skepticism" on any cooperative advertising policies "that effectively eliminate the ability of dealers to sell product at a discount."
However, Richard Parker, the FTC's director of the bureau of competition, told SN he "wasn't aware" of any investigation in the video realm, but refrained from saying for certain that video was not being scrutinized.
The five music companies -- Time Warner Inc., Seagram Co.'s Universal Music, Sony Corp., Bertelsmann AG's BMG Entertainment, and EMI Group PLC -- signed consent decrees before the action went to court, agreeing to end their MAP practices for seven years, among other restrictions.
According to Greg Durkin, research director and video analyst at Alexander & Associates, New York, MAPs in the music industry have generally been more controversial than in video due to music's longer history, and he doesn't believe the FTC will pursue video MAPs as vigorously as it did with music, if at all.
"My personal opinion is that [the FTC] needed to do something to bring any sort of fairness into that industry," he said. "There have been too many forces in motion for a long time -- prepackaged music has been around for more than 50 years. But home video is relatively new."
He said MAPs just haven't been "that big of an issue" in video, a sentiment echoed by retailers and distributors alike. Studios, however, were reluctant to speak on the issue and calls to industry associations on the issue were not returned. SN contacted New Line Home Video, Universal Home Video and Paramount Home Video, each of which declined comment on the matter.
"No one will speak on this because music just got slapped," said one studio executive, who wished to remain anonymous. "MAPs sound like price-fixing, like monopolistic practices. Of course, they were started to counter loss-leader selling, which really hurt retailers. MAPs were an attempt to hold the line on prices, but is loss-leader pricing any better than price-fixing?"
Still, though, few interviewed by SN said they believed video would be targeted in the same way music was, one reason being that sell-through is just a part of the video industry.
"Not all videos are for sale," said one distributor, noting that, in general, MAPs do more good than harm.
"When Best Buy sold below cost and still got marketing help from the studios, that wasn't healthy for the industry. It devalued the perception of the video for one thing. MAPs were put in place as something noble and good -- - first, to protect the investment of the studio, and to assure retailers a profit. Retailers could still break with MAP guidelines -- - they just wouldn't receive marketing funds if they did."
Marilyn Aldrich, video buyer at Dahl's Food Markets, Des Moines, Iowa, agreed that MAPs are "more of a good thing than bad. They're nice," she said, "because you get a halfway decent margin."
Other retailers expressed indifference to the matter, saying MAPs generally don't affect them all that much. Jason Hoyle, video manager at Hilander Foods, Rockford, Ill., said that since supermarkets have "the grocery-store advantage," meaning that videos are bought or rented as a matter of convenience rather than price, it doesn't much matter if their prices are undercut by mass merchants.
"Wal-Mart will always have a better price than we will, and a lot of people will certainly buy there," he said. "But Wal-Mart breaking with MAPs doesn't hurt us. If people come to a supermarket and they see a video they want, they'll just throw it in with the groceries."
He said he repeatedly sees mass merchants and specialty dealers breaking with MAPs and street dates, and so far, it hasn't been a threat.
For Brent Bailey, video manager at Darrow's Country Market in Baraboo, Wis., the issue is completely moot. "We're too small for co-op dollars, anyway," he said. "Does anyone even notice minimum advertised prices?"
Durkin said he believes another reason the music industry was investigated was due to the advent of MP3. Retailers may have even secretly welcomed the FTC's decision, he said, since so many college-aged consumers have been downloading music from the Web for free via controversial Web sites like Napster. With more competitive pricing, he speculates the labels are hoping to lure wayward consumers back to purchasing the CD format.
"The labels have been panic stricken," he said. "They've been thinking that their product is doomed, since every CD is a master copy. An MP3 file can be created, compressed and transmitted very easily, so there has been a lot of attention to it. But right now, there's no equivalent technology to transmit videos. It's not as big a threat."
He also said he believes loss-leader pricing will soon become a thing of the past. "You just can't survive as a loss-leader anymore," he said. "You can only have so many downed quarters. A while ago, that might not have mattered if you were gaining market share and your stock price looked good. But it was found to not be a good business practice, and you don't see it much anymore."