Jersey’s government is proposing closing a tax loop hole which UK retailers such as Tesco and Asda have been using to sell cheap CDs to evade VAT. It’s unclear whether the loop hole will be applied retrospectively to existing companies. However, the posturing by the Jersey authorities suggests that:
a) there has been pressure from UK authorities and business
b) they would be willing to grant concessions to Tesco et al if they supplement the ‘envelope stuffing’ jobs with some more meaningful positions.
Though this ruling only applies to direct-to-home sales, it touches upon a wider issue. Tesco and other retailers of sub 9 pounds chart CDs have undoubtedly squeezed margins for high street retailers, and have used some controversial methods to achieve the low price points. But the impact of these retailers, along with cheap online retailers such as Amazon, have been major contributors to increased music sales in the UK by bringing the cost of music much more in line with consumer perceptions of actual value. Critics would point to the fact that sales actually declined in value terms (-1.6% – IFPI). But unit shipments increased by 3 percent (IFPI) and what is actually happening is a necessary readjustment of the market, back to realistic margins. Average CD album prices rose year on year to an unsustainable level and left many consumers simply believing that CDs were not worth the money. Which in turn helped drive file sharing and CD copying. Now prices are more competitive British music fans are buying more music. So whatever the pain felt by some traditional stake holders in the industry, the new market entrants have helped revitalized music sales and have had to employ innovative tactics in order to enter an already crowded market place.