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Chairman Says Music Industry Flap Shouldn’t Hurt Business

November 12, 1993

DEERFIELD BEACH, Fla. (AP) _ Rejection by music industry companies of Sensormatic Electronics Corp.’s system to prevent shoplifting of recordings shouldn’t hurt the company in the long-term, its chairman said Friday.

Chairman Ron Assaf said the anti-theft tags are still popular with retailers and they represent only a small portion of the company’s revenues.

Six manufacturers and distributors recommended Thursday against use of the tags, which are designed to protect compact discs and cassettes tapes. The distributors claim the sound quality of cassette tapes is harmed when when the tags are deactivated at the cash register.

The news helped cause the company’s stock to drop $4.50 on Monday to $43.50 on the New York Stock Exchange. It recovered Friday, closing up $2.37 to $45.87 1/2 .

The rejection by the six distributors, including Sony Corp. and Time-Warner Inc., could slow the industry’s plan to insert a single anti-theft tag during manufacturing. Protection steps are now taken at the retail level.

″The retailers still like the product, and it’s selling at record levels,″ Assaf said. ″I think it’s more of a black eye, a PR disaster.″

The chairman noted the music business makes up about 3 percent of the company’s $630 million in revenues. And he said the problem doesn’t affect CDs, only the cassette market, which is losing market share to CDs.

Tim Sites, a spokesman for the Record Industry Association of America, which represents the distributors, said the sound quality problem was reported Wednesday by engineers for the companies.

The group threw the issue back to the National Association of Record Merchandisers, which endorsed the Sensormatic system last spring and now says it will review the complaints.

Sites said the manufacturers have been eager to find an acceptable solution since the oversized long boxes for compact disks were phased out this year to eliminate waste paper and plastic. But he rejected the suggestion that cassette tapes are diminishing in the industry.

″Cassettes are still 45 to 50 percent of the business,″ he said. ″They are not on the way out by any means. They are a very viable technology.″

Assaf said the industry response came as a surprise because the company’s tests have shown no damage.

Manufacturers ″have tried to put stumbling blocks every step of the way,″ said Sensormatic’s chief operating officer, Michael Pardue.

Separately, Sensormatic approved a 10 percent cash dividend increase at its annual meeting Friday.

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