Compact Disc - packaging Wars: Costs vs. Economy 1992

Although the protracted controversy over how to package compact discs in the U.S. was os- tensibly put to rest in February by the Recording Industry Assn. of America when it decided to adopt the jewel box as its standard package size, the dust from that decision still lingers. By the time it settles, probably sometime in mid -1993, Ameri- cans will buy virtually all their CDs in plastic jewel boxes, with no cardboard outer packaging.

Until then, however, the transition set in motion three years ago by the industry forces that first advocated the elimination of the wasteful long - box will continue to unfold, leaving in its wake a battery of complications for all sectors.

Impact of CD Packaging Shift

Retailers will bear the brunt of the downsizing of the CD package, since their fixtures were built to accommo- date a Eby -l2 -inch package and their shrinkage rate -already dangerously high -will increase. Paperboard packaging companies will also suffer a severe blow from the transition, since many of them rely on the long - box for a hefty chunk of their business.

Already, the paperboard firms are finding market niches to fill the void created by the disappearance of the 6- by -12. For instance, three record labels have used Ivy Hill's Eco-Pak on major releases this year, and two variants of that box are being used to package CD singles and CD -ROMs. Shorewood Packaging, a licensee of the Eco -Pak, printed all the cardboard parts for the latest release in that package, the Beach Boys' "Sum- mer In Paradise."

AGI, known for its DigiPak and DigiTrak packages, continues to make its mark on the industry with non - longbox packaging. Independent label Continuum Records recently an- nounced that all its future releases would be issued in DigiPaks. AGI also supplies DigiPaks to the singles mar- ket in the U.S. and for various uses in Japan, where cardboard packaging is more popular than it is in the States.

Paperboard Packaging Decline

However, these opportunities notwithstanding, the paperboard com- panies have much more to lose than to gain from the conversion away from the longbox. One year ago, these firms -under the aegis of the Entertainment Packaging Council - launched a campaign called Sound By Design, whose mission was to promote paperboard as the CD packaging material of choice. The participating companies were Ivy Hill, AGI, Shorewood, International Paper, and Queens Group.

That campaign fizzled, and along with it the spirit of unity that bound the five companies together. Today, only Shorewood is a licensee of the Eco-Pak, whereas once every paperboard firm pledged its support of the Ivy Hill product. Conversely, Ivy Hill -once a licensee of AGI's DigiPak -is no longer manufacturing that product.

The final nail in the coffin of the paperboard coalition may have been hammered by WEA itself, the creator of the package and originally its staunchest supporter.

WEA, which introduced the EcoPak as the ideal future standard at the 1991 National Assn. of Recording Merchandisers convention, quietly withdrew its support of the Eco -Pak early this year for reasons that were never announced.

Cost Challenges of EcoPak Adoption

The EcoPak, in its design, remains a genial concoction that comes closer than any other alternative package to addressing retailers' and man- ufacturers' concerns. It fits in existing retail and home storage bins, provides ample graphics space, closes firmly (unlike other cardboard CD packages), and contains no throwaway parts.

However, according to sources, two major factors that kept the EcoPak from emerging as the packaging standard were its inability to be re- used, since it's not a generic package like the jewel box, and its cost.

This latter point was heatedly debated for the duration of the packaging controversy. While proponents argued that the Eco -Pak is no more expensive to produce than the cur- rent standard configuration, critics countered that the package would actually cost about 50 additional cents per unit than the long box /jewel box combination, and that building and installing man- ufacturing facilities to produce the Eco -Pak would cost millions of dollars.

It is neither fair nor realistic to decide which side is right, since too many variables affect the cost of manufacturing any CD package: number of panels, type of lamination, number of units produced, number of pages in the booklet, and special requests of artists and designers.

Nevertheless, cost considerations swayed the decision makers at WEA toward the jewel box, say sources within and outside the WEA camp.

Fantastic plastic

If the paperboard manufacturers saw their alliance erode, the plastics makers' coalition -the Jewelbox Advocates and Manufacturers -also disbanded, but for different reasons. Whereas the cardboard companies essentially lost the race to introduce the new CD packaging standard, the plastics makers had plenty of reason to re- joice when the RIAA made its decisive an- nouncement in February.

The company that will reap the greatest reward is probably Canton, Ohio -based Alpha Enterprises, the leading manufacturer of theft- deterrent plastic "keepers" for CDs and cassettes. While retailers are reluctant to put their music software in these frames -on the grounds that they're unsightly and costly -most say they will use them, at least temporarily.

The average per -unit cost of these keepers is 45 -50 cents, offsetting whatever savings retailers might re- alize from the packaging rebate programs four of the six major manufacturers have unrolled. (Roughly, these programs provide for savings in the neighborhood of 20 cents per unit for one year. So far, WEA, PolyGram, Sony, and BMG have announced such policies.)

Dealers still prefer to invest the money than to risk losing large quantities of prerecorded music product to shoplifters. Lift Discplay Inc., maker of the upscale, jewel-box-only flip- through fixtures, also stands to benefit from the RIAA decision, though the Edgewater, N.J. firm is still dogged by the two major complaints that have always been raised against its systems: that they are too expensive and too labor intensive.

In an effort to counteract these disadvantages, Lift is encouraging potential customers to use Lift displays without necessarily adopting the fullfledged system, which requires store personnel to remove every disc from its longbox and jewel box and lock it up behind the register counter. So far, Lift has yet to see its bottom line impacted by the new world order in CD packaging.

The other main players in the plastics camp were the entrepreneurs who designed their own prototype packages -notably David Cowan and Reynard CVC.

Cowan came close to hitting pay - dirt when Sony embraced his sliding - tray jewel box, known variously as the Inch Pack and Cowan Pack However, talks between Sony and Cowan broke down when the two failed to agree on terms, according to various sources. Sony proceeded to explore other options, at one point even testing a jewel box that was modified so that it could be stocked open, while Cowan faded from the picture.

Reynard's Laserfile, also a jewel - box variant, was proposed as a possible standard, but it never got beyond raising the eyebrows of a few ranking distribution executives.

Source tagging

Today, the competition has shifted from the package itself to the in -store security devices employed to protect it from theft. The major industry suppliers of these systems are all busy trying to convince NARM that theirs is the technology of choice.

The contest was engaged in May, when NARM's Loss Prevention Committee-in tandem with the RIAA -announced it would conduct a test of the major electronic -article- surveillance systems used in music retail outlets, with the goal of determining a standard security technology that could be used to encode all compact discs, cas- settes, DCCs, and Mini Discs at the point of manufacture. This "source tagging" of music software would en- able retailers who are using such systems to stock live jewel boxes without worrying that a shoplifter could peel off a security tag and steal a disc.

However, the source -tagging initiative is not without its shortfalls. For one, industry experts have noted that source tagging is a proposition so difficult that few -if any -other retail industries have successfully implemented it Also, NARM's test omitted sec- ondary suppliers like Knogo and 3M, causing what various sources termed "a delay" in the process, as those left out of the contest persuaded NARM that they, too, should be allowed to make bids for a security technology.

Furthermore, retailers complain that the RIAA decision to eliminate the longbox should have coincided with NARM's EAS test so that a smooth transition from longbox to jewel box could have been effected. Instead, store operators will undergo a period of several months -between April 1993 and whenever source tagging becomes a reality -when they won't have a built -in theft deterrent Retail- ers who are EAS equipped fear that their system could become obsolete in the near future, and those who do not have electronic security are reluctant to invest in a system until a standard is established.

Despite their predicament, music merchants are demonstrating remarkable flexibility. Many chain dealers are saying that, rather than institute a chainwide policy for converting to the jewel box, they will tadde the problem on a store -by -store basis, using keep- ers in outlets that have high pilferage rates and stocking live jewel boxes in other locations.

Others are investigating options ranging from the Lift system (which is particularly advantageous for smaller operations) to designing their own fixtures.

At the end of the day, U.S. retail stores will probably look a good deal like their overseas counterparts, which have used the jewel box -and the jewel box alone -since day one.