How Digital-Recording Pact Will Affect Consumers : The royalty accord won’t raise prices soon, if at all, but it will lead to introduction of new software, a major factor in the acceptance of the new format.

A proposed royalty agreement reached recently regarding home digital recording has been called a landmark. But many consumers aren’t clear what it means to them.

The two-part agreement between the consumer electronics and record industries called for hardware manufacturers to incorporate a copy-limiting technology--the Serial Copy Management System--into all digital recorders. Also, consumer electronics companies would pay the record labels royalties amounting to 2% of the wholesale price of every digital recorder sold and 3% of the price of a digital blank tape.

The reason for the agreement is that record companies want compensation for royalties lost when consumers make digital tape copies of CDs. The new digital technology, record companies claim, will increase copying because the digital tapes sound far better than standard analog tapes. With digital recorders, it’s possible to make tapes that nearly sound like CDs.

The only digital recorder on the market now is the DAT (digital audio tape) player, which was introduced into the United States a year ago by Sony. But two digital formats are due out next year. Philips’ DCC (digital compact cassette), which will play and record digital and standard tapes, is scheduled for early next year. Sony’s MD (Mini Disc), a small, recordable CD played on a portable machine, will be introduced next fall.

Some common consumer questions regarding the effects of the agreement:

When will this agreement take effect?

These levies will only take effect if and when Congress turns this agreement into law, which may happen some time during the next session. In the meantime, the agreement won’t affect prices.

Which recorders and blank tapes will be affected ?

Any digital formats on the market when the law is passed. For now that probably means only DAT. But the DCC and MD may be out by then.

How will it affect prices?

The levy on the recorders will be a maximum of $8 per player. On blank digital tape, the royalty would amount to about 6 cents. But, said Cynthia Upson, spokeswoman for the Electronic Industries Assn., all the added price might not be passed on to the consumer. So the cost to the consumer could be minimal, while the royalty fees would bring an estimated $100 million annually to the record industry.

Will the price of analog tapes and recorders be affected by this law?

No. The agreement refers to home digital recording. As part of the agreement, record companies have promised to abandon efforts to get royalties from the sale of blank analog tapes and recorders.

Will this agreement hasten the introduction of new digital technologies--DCC and the MD?

Mike Piehl, marketing manager of audio components at Philips, said the DCC will come out in the spring, as scheduled. Shari Haber, Sony’s director of corporate communications, said that, as of now, there’s no change in the company’s plan to market the Mini Disc next fall.

“Royalties or software availability had nothing to do with the decision to market the MD next fall,” Haber said. “The decision about when to market it has to do with things like product design and market considerations.”

Though this agreement may clear the way for record companies to put out software in the new formats, does that mean the labels will rush to market music in these formats when the machines are introduced?

No. “The record companies will be cautious with software in all formats,” said industry analyst Mark Finer of Communications Research in Pittsburgh. “Even with the DAT. It hasn’t been a big hit with consumers so why should record companies run out and flood the market with DAT software?

“Also, it’s not reasonable to expect them to put out product in all those formats at the same time. Stores don’t have room for software in all these formats. Next year, when all the formats are out, record companies will move cautiously, watching how the consumers react. But now, when the bill is passed, the way will be clear for record companies to jump on the bandwagon of any digital format they prefer.”

Though the marketing of DAT and the impending introduction of other digital formats prompted this agreement, the DAT--marketed by several companies--hasn’t been a rousing success. Fewer than 100,000 players have been sold.

One deterrent to mass consumer acceptance of DAT has been the price--$700 and up. Another has been the lack of prerecorded software. Since record companies weren’t getting royalties, they weren’t going to support the DAT format by releasing prerecorded digital tapes.

A class-action suit filed by songwriters against Sony has helped to keep hardware manufacturers from climbing aboard the DAT bandwagon. But in return for Sony’s pledge to support this royalty agreement, the suit was dropped.

Availability of prerecorded software is a major factor in the acceptance of a new digital format. This agreement facilitates the introduction of software--which also indicates necessary cooperation between the hardware and software industries.