Philips Research

The history of the CD - The introduction

In Japan, where the Japanese/Dutch Compact Disc was launched on 1 November 1982, interest was high right from the start. However the system’s reception in the Netherlands was more cautious.

In 1983 the price of a CD in Japan was 3,800 Yen (about 20 euro), and the price of a player, varied from 165,000 Yen (Sharp) to 250,000 Yen (Onkyo and Yamaha). The Marantz CD-63, virtually identical to the Philips CD-100, was priced at 189,000 Yen. These prices were the same everywhere in Japan, because in contrast to what was customary no discounts were given during the introduction period.

Comments from record companies and the retail trade showed that the acceptance of the Compact Disc in the Netherlands was initially slow to take off. "I am positive about the Compact Disc, but I’m not yet sure if it’s going to be a success. The economic situation means everyone has to economize, and the first things to suffer are luxury products. So I think that sales will be lower than expected."

Retailers had their doubts about the double investment that they would have to make in the start-up phase. "It will mean double stocks of both CDs and LPs. And that will cost a lot of money. But I think good retailers will get involved right from the start. They may not have big sales of CDs in the beginning, but if they have both players and discs on show they will create interest among consumers as well as increased traffic in their stores. The latter is always beneficial, while the first will probably show results in the longer term."

One major record retailer in Amsterdam was much more skeptical. "I’m not happy with it at all. The small disc means a much bigger risk of theft. And it also means a lower perceived value for the consumer. I think it will probably be a success, as long as the price of the players goes down and the econo¬mic situation improves. I’m not in a hurry with it, but I will go along with it reluctantly - even if I have to keep the CDs locked away safely.”

And as far as record companies were concerned, the most common attitude was one of ‘wait and see’. "I’ve been to a demonstration and I have to say it looks promising. We don’t intend to take the lead with CD, but we won’t be the last to switch over either. I don’t think the CD will replace the LP, it’s more likely to displace the Compact Cassette. And even that could take years. We’re also still considering the CX system. It really depends on what consumers choose. For the moment we’re not working actively on either system."
Other companies were just as reserved. "We’re following the developments closely, but for the time being we remain cautious. My fear is that if it isn’t handled correctly it could be just as short-lived as the eight-track cassette. We’re studying CD internally, but we still have too little information about its acceptance. In think it is promising in principle, especially because of the big cost savings that it offers."

Two years later...
Although demand for CDs and CD players at first looked like making a slow start after the introduction in Europe, that all changed rapidly at the beginning of 1985. Demand for CDs increased so quickly that PolyGram had to make a big effort to meet the exploding demand. Based in Hannover-Langenhagen, the company had started CD production in 1982, making 400,000 discs in that year. The following year that had increased to 6 million, in 1984 it was 13 million, and in 1985 output reached 25 million. With a further doubling of production in 1986, PolyGram accounted for around one-third of world CD supplies. In mid-1985 PolyGram was the largest CD producer, and in second place was CBS/Sony in Japan.

Player sales increased faster than the most optimistic expectations, with the 1985 figure of around 5 million players being more than doubled in the following year. A growth which meant that every self-respecting electronics company was making preparations to enter the market for ‘the audio product of the future’, if it had not already done so. And while this began to lead to a surplus of players, the opposite was true for the CDs themselves. Throughout 1986 the disc producers were unable to meet the fast-increasing demand, despite a world production of some 60 million discs. Some labels even said they could sell as many as thirty per cent more discs if only they had enough production capacity. And with companies around the world building new disc factories at full speed, it took until late 1987 before output was able to match the market demand.

End of the LP era
The same could not be said of the LP record, for which demand was declining at almost the same rate. One of the first companies to stop production was Deutsche Grammophon (DDG, now DG), announcing in September 1989 that it would issue its new releases on CD only. Other labels also reported a shift to CD for their classical repertoire, but continued to issue some new releases on LP. But expectations were that the LP would largely have disappeared within another four years. By that time 32 per cent of households had a CD player, and that figure reached around 45 per cent in 1990.

As far as the acceptance of the CD was concerned the Netherlands was still ahead of the rest of the world. While some 390 million CDs were sold worldwide in 1988, 56 percent more than the year before, the growth rate in the Netherlands was more than 100 per cent. Research showed that CD player owners purchased 16 CDs in the first year of ownership, and around 9 or 10 discs in the following years. By 1989 CD sales had reached a share of 80 per cent of the total audio carriers market, while that of LPs had declined to only 12 per cent.

Ten years after
In 1993, ten years after the European CD introduction, music lovers in the Netherlands were still the biggest spenders. After a slight dip in 1992, sales of CDs and other audio carriers were showing a recovery, and with total sales of 500,000 euro the Netherlands held the world No. 8 place for overall sales, and the No. 6 place for CD sales.

Music buyers in the Netherlands were spending an average of 34 euro a year, by far the highest in the world. In the USA the figure was about 29 euro. The country had 11,000 record retailers, and 75 per cent of households had one or more CD players. Some 85 million CDs had been sold in the preceding ten years, with the average price declining from 23 to 14 euro over that period.