Armed only with a handful of CDs, mild-mannered draftsman Richard Maese looks harmless enough. But to the moguls of the multibillion-dollar recording industry, Maese might as well be one of Steven Spielberg's Velociraptors browsing through the racks at Rockaway Records in Los Angeles. What worries the record companies and their performers is that all 45 of the CDs Maese purchased recently were used. Even worse, he bought some of them at Wherehouse, a major record chain that has rocked the music industry by expanding into a corner of the business once the domain of small independents like Rockaway. "When mainstream stores get into used CDs," says Russ Bach, president of CEMA Distribution, "this sends some real problem signals out to our industry."
That's why four of the country's six largest distribution companies, representing most major record labels, quickly retaliated against Wherehouse and other chains selling used CDs. Since May the likes of CEMA and Sony have begun withholding what could amount to millions of dollars in subsidies for record-store advertising. Wherehouse, one of the top six retailers in the country, stands to lose $10 million in subsidies a year, says an industry source. Even country-and-Western music heartthrob Garth Brooks is getting tough. Arguing that the used-CD market deprives labels and artists alike of earnings, Brooks has said he would not release his next album to any chain or store that sells used CDs.
Wherehouse, for one, hasn't blinked. After successfully test-marketing used discs late last year, Wherehouse now sells used CDs at 260 of its 339 stores in the West. Though the country's very largest chains, such as Musicland Store Corp., which owns Musicland and Sam Goody, and MTS Inc., the parent of Tower Records, have steered clear of used CDs, some important smaller chain stores like Hastings and Strawberries have followed Wherehouse's lead. "There's a market for used CDs," says Wherehouse vice president Bruce Jesse. "The record companies believe they can make it go away. We don't."
Few people lost sleep over the used CD market as long as it was confined to mom-and-pop record shops that in Bach's words are "like used-clothing stores." Prior to Wherehouse's leap, used-CD sales represented a tiny fraction of the United States' $5.3 billion CD business-"around 1 percent," according to Bach. says that "mainstreaming" used CDs would push that number to 20 percent, cut profits, trim royalties (which are paid only on the first sale) and take money away from struggling new artists. "Michael Jackson doesn't need the money," says Bach. "But there are a lot of people in Michael Jackson's food chain, and when payday comes, they want to be paid."
The record companies that find themselves decrying used-CD sales are victims of the excellence of their product-and its price, which record merchandisers have long complained is too high. The durable CD is the Eveready Bunny of the recording industry. Audiophonically, a used CD that hasn't been mauled is as good as a new one. And the price is right. A recently released David Sanborn used CD at Rockaway costs $7.99. New: $14.
If the lines in this battle are plainly drawn, the outcome is far less clear. The distribution companies' only legal recourse seems to be to establish that selling used CDs should be construed as rental, which is against the law. Short of that, the companies can continue tightening the advertising noose on the retailers. "This is crazy," says MTS president Russ Solomon. "The record companies are crying, 'The sky is falling!' We don't think Wherehouse can make any money selling used CDs. Who the hell knows where this will end?" Or whether music fans will be forgotten in the heat of the argument.