The Digital Home Entertainment Trade magazine Cue Entertainment recently published an in-depth overview of the exploitation of LVCR and the effect that it is having on mainland businesses.
The full article can be obtained at www.cueentertainment.com but below you will find a number of interesting quotes from the article.
The previous government denied there was any market distortion caused by the current system of tax relief. The Treasury’s Financial Secretary Stephen Timms MP stated in an email last February that: “The implication that businesses are simply setting up on the Channel Islands to take advantage of this relief is not true.”
His assertion flies in the face of direct statements made by offshore retailers. In its 2006 Year End Report, HMV cited competitive advantage as a means to improve competitiveness as a reason for relocating to Guernsey.
It states: “Fulfilment for hmv.co.uk was relocated to Guernsey in November 2005, enabling it to improve prices relative to our Internet-based competitors, and at Christmas sales increased by 78% on the prior year.
The internet fulfilment service of the Jersey Post Office, Jersey Post Logistics, marketed the circular shipping of goods on its website to potential customers. It advertised a service offering to collect goods at Portsmouth for transport to Jersey, before re-mailing back to the UK. When the VAT strategy unit at HM Revenue & Customs was informed, the website disappeared. The practice, however, has not.
One example is when the a new album or DVD is pre-sold ahead of its release date. On release, that item is shipped from the UK distributor to the Channel Islands for packaging and redelivered to a largely UK customer base. Some have questioned why simply storing goods in a warehouse for a predetermined period makes the setup any less noxious. The fact is that an industry exists in an area where it would not if purely market laws applied.
It is not just the music and film sectors that are affected. The range of vendors now taking advantage of LVCR in the Channel Islands has steadily expanded over recent years. Items such as memory sticks, memory cards, printer cartridges, camera peripherals, car parts, vitamins, contact lenses, lingerie and cosmetics are all available from the Channel Islands.
In fact, the global memory card business dwarfs the music business by over seven times, being worth an estimated £143 billion a year.
It finished by moving back to the Music and DVD industry with some interesting figures from the Entertainment Retailers Association :
INTERNET SALES VOLUMES
Total Internet sales of CDs – 20 million units with a total value of £200 million
Total Internet sales of DVDs – 28 million units with a total value £335 million.
Total Internet sales of CDs – 34 million units with a total value £280 million (increase on 2005 of 40%)
Total Internet sales of DVDs – 70 million units with a total value £700 million (increase on 2005 of 209%)
TOTAL MUSIC MARKET VALUES (BOTH INTERNET AND TRADITIONAL SHOPS)
Total CD Sales £1,856m
Total DVD Sales £2,214m
Total CD sales £1,314m (decline of 29% on 2005)
Total DVD sales £2,111m (decline of 5% on 2005)
TOTAL NUMBER OF RETAIL OUTLETS ON UK MAINLAND
Music Retailers 5,621
DVD Retailers 6,040
Music Retailers 4,644 (19% decline on 2005)
DVD Retailers 5,181 (14% decline on 2005)
TOTAL NUMBER OF INDEPENDENT RETAIL OUTLETS ON UK MAINLAND
Music Retailers 734
DVD Retailers 251
Music Retailers 269 (63% decline on 2005)
DVD Retailers 175 (30% decline on 2005)
According to the ERA 2010 yearbook (stats on ERA website) 33.8% of DVD sales by value were internet sales and ca. 22% (figure less digital) of music sales by value i.e. £714m DVD and £289m music C Ds. In terms of the volume figures it was ca. 71 million DVDs (about 1 in 3) and ca. 38m CDs (about 1 in 4) were sold via internet mail order.