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Virgin carries out payment freeze threat

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Virgin Our Price is witholding £50 million in payments owing to record labels, in what it claims is a campaign to secure better discount terms for the Virgin Our price retail chain in the face of allegations that online CD suppliers get better deals, the Sunday Times reports. However, senior music industry sources claim Virgin's allegations are a smoke-screen for the chain's lack of cash. The music companies have cut off supplies to Virgin, in retaliation, the ST says. Virgin claims it is being offered worse margins than upstart online music retailers and -- unless its suppliers capitulate -- threatens to stop selling music within two to three weeks in its high street shops. Virgin accounts for 15 per cent of UK music sales, according to the ST. Currently, music represents 45 per cent of the sales mix within Virgin Our Price. The retailer says it will pump up DVD and mobile phone sales, to replace music. The company wants to double its discounts from ten per cent to 20 per cent and to move music from firm sale to sale or return. The dispute is reminiscent of a spat between Computacenter and Compaq in the early 90s. In its lust for retail sales, Compaq initially offered better terms and conditions to Dixons -- then a PC neophyte -- than to the UK's biggest reseller. Computacenter went public with a warning shot across Compaq's bows. The Virgin/record industry dispute differs in one key respect -- the £50-million held to ransom by Virgin. This may do wonders for Virgin's cash flow, but what will it do for the company's standing with credit rating organisations? Virgin says it will pay up, whatever the outcome of the dispute, the ST reports. So why not pay up now? Probably because it can't, right now. The Register has learned that Virgin held crisis talks with its music industry creditors last week, though the outcome isn't known. ® Related stories UK retailer threatens music biz with payment freeze Digital music threat forces Virgin to moot store closures

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