Tesco push on CD deals with music groups in the UK

By Andrew Edgecliffe-Johnson 03/06/11 Financial Times

Tesco is pushing music companies to accept minimal upfront payments for the compact discs they ship to the UK retailer, in a renegotiation that will test how record labels’ bargaining power has diminished in line with shoppers’ interest in CDs.

Instead of paying £7 or £8 upfront for a typical album, Tesco wants to pay just 50p initially, with the remainder handed over when it sells the disc, Rob Salter, Tesco’s entertainment director, told the Financial Times.

The proposal could have a painful effect on suppliers’ cash flows, some music executives warned, but others added that they were willing to test Tesco’s plan.

Similar tentative discussions had begun with US retailers, one said, and could reverse a global trend of stores devoting less shelf space to CDs, whose sales have more than halved since 2000.

Mr Salter said the change of terms would allow Tesco to stock a wider range of music in more of its stores. “I think we’ll all end up with more money,” he said.

A trial with a Robbie Williams album last year, which put the CD in outlets that had given up selling music, had increased Tesco’s share of the album’s UK sales by 40 per cent from its typical market share, he said.

Tesco, which spends £3m a year shipping unsold CDs back to music companies, would also take on the task of destroying unwanted stock, Mr Salter said.

After Guy Hands bought EMI in 2007, the Terra Firma founder said the UK music group spent £25m a year to destroy unsold CDs.

The four biggest music companies declined to comment, but in private music executives were divided.

One warned that labels and distributors were not set up to operate on a consignment model. “Maybe we won’t have a choice at some point in the future, but . . . we have no interest in this at all today,” he said.

Another industry member said his company had had no such discussions with Tesco, but a third said Mr Salter had been pushing the idea for more than a year.

A fourth executive said new terms could persuade retailers to carry more inventory while giving labels more influence over merchandising.

Media executives fear that chains such as Walmart and Tesco are losing interest in CDs and DVDs as physical entertainment sales decline. Kevin Tsujihara, president of Warner Bros’ home entertainment group, told the Financial Times digital media conference last week that “impulse purchases” could be lost if stores gave less space to entertainment products.

“If we lose this space we will not get it back,” he said, adding that the industry should bundle rights to access music on digital devices with each CD to refresh a format that has changed little in a generation.

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