Laws threaten market for used compact discs


CHICAGO -- New legislation aimed at curbing the sale of stolen goods could threaten the growing used CD marketplace in a number of states.

John Mitchell -- outside counsel for the National Association of Recording Merchandisers, which is holding its annual convention here this week -- reports that Florida and Utah have passed secondhand goods legislation -- sometimes referred to as pawn shop laws -- that could make the buying and selling of used CDs much more onerous to stores and less attractive to consumers looking to sell music they are no longer interested in owning.

In Florida, the new legislation requires all stores buying secondhand merchandise for resale to apply for a permit. They could be required to thumb-print CD sellers and get a copy of their state-issued identity documents, such as a driver's license. Furthermore, stores could only issue store credit -- not pay cash -- in exchange for traded CDs and then be required to hold them for 21 days before reselling them.

Rhode Island also has pending legislation, Mitchell said. "State lawmakers in different states tend to talk to one another ... and there seems to be some sort of a new trend among states to support secondhand-goods legislation," he said.

While most states have pawn shop laws, they typically are not enforced against all sellers of secondhand merchandise. But as a precaution, most merchants, including record stores owners, already collect ID from individuals selling previously owned goods.

In the states where pawn shop laws are getting more restrictive, it makes it prohibitive to sell used CDs, said one merchant. In fact, one music retailer -- who operates stores in Florida but is not headquartered there -- reports that one of the chain's stores already has had a visit from the local police enforcing the law. As a result, the chain stopped dealing in used goods in that store.

Meanwhile, Florida retailers of home video and video games are less hit. Stores selling previously owned videos and games do not need a permit and only have to wait for 14 days before reselling the merchandise.

Laws that result in the curtailment of used CD sales likely would be considered good news to record labels and music distributor executives, who have long abhorred the growing strength of the used CD market. In fact, until the mid-'90s, labels used to put pressure on merchants who bought directly from them not to carry such merchandise. At the time, some majors attempted to kill the strategy by initiating new policies to withhold cooperative advertising from retailers buying directly from them but selling used CDs, a move endorsed by some artists, including Garth Brooks.

But that effort triggered a revolt from independent stores and consumers, highlighted by barbecues of Brooks CDs, in some places called a "Garthecues." It also served as a catalyst for a Federal Trade Commission investigation of the music industry practices, forcing those majors to back down from their anti-used CD stance.

Since then, merchants who buy direct from majors who participate in the category say that sales of used CD have grown from about 5% to as much as 20% of overall CD revenue. Also, those sales are more profitable.

Traditionally, used CD sales are protected by first-sale doctrine in copyright laws allow owners to resell CDs, Mitchell said. He also arges that a CD resale also is protected by the First Amendment. Because selling a CD could be seen as an indication that the owner does not like or agree with the content, the collection of identification information could be seen as a violation of First Amendment rights.