Wherehouse Ups Ante in Used CDs : Recordings: 250 of its stores will carry recycled discs, a tenfold increase, as the music industry wages a multimillion-dollar battle.

In a move that raises the stakes in the music industry’s multimillion-dollar battle over used compact discs, Wherehouse Entertainment will dramatically step up its commitment to recycled music on Sunday by expanding its used-CD sales program to include 250 of its 315 outlets.

That’s 10 times the number of stores the Torrance-based firm committed to used-CD sales just six months ago, a plan aimed to help combat rising prices and increase sales volume in a dwindling market for new product.

“We know it’s risky,” said Bruce Jesse, vice president of marketing at Wherehouse, the first major chain to sell used CDs. “But you can’t believe the response we’ve had so far from consumers. It’s like instantaneous gratification. Everybody loves used CDs.”

The company’s aggressive expansion into the secondhand CD market--which includes a massive advertising campaign--is widely viewed as a slap in the face to manufacturers trying to squelch the used-CD movement. The entire music industry, especially other major chains, are closely monitoring Wherehouse’s latest move.

Record manufacturers staunchly oppose the sale of used CDs because they fear such transactions will reduce purchases of new product and may also diminish the “perceived value” of the industry’s biggest money-making audio format.

In recent months, four of the nation’s six largest record distribution firms--Time Warner’s WEA, Thorn-EMI’s CEMA, MCA Music’s UNI and Sony--have retaliated against merchants who sell used CDs by tightening restrictions on returns of opened product and refusing to underwrite print and radio advertisements that feature their artists.

These measures will cost Wherehouse and other used-CD vendors across the nation millions of dollars this year in advertisement subsidies.

But Wherehouse isn’t the only merchant fighting back. More than 100 small independent store owners--which record labels have traditionally relied on to help break alternative and unknown acts--have banded together to form the New Jersey-based Independent Retailers Music Assn.

Members of the group are voicing their opposition to anti-used-CD policies by slashing pre-orders and halting promotional displays, in-store airplay and sale pricing for all new artists affiliated with Sony, CEMA, MCA and WEA. If the coalition meets its goal of recruiting half the nation’s 4,000 independent record stores as members, these practices could cost manufacturers millions of dollars before the year ends.

“By playing hardball with the used-CD issue, these guys are forcing us to get out of the new artist business,” said Don Rosenberg, a co-founder of the group and owner of the 14-outlet, North Carolina-based Record Exchange, which has slashed orders with the four majors by almost $100,000 already this year.

“The way I see it, the manufacturers are trying to stop the major chains from entering the secondhand market, and little guys like us who depend on used-CD sales to survive are getting caught in the middle. In the end, all that’s going to happen is the record companies are going to hurt their own bands.”

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Secondhand-CD transactions currently make up less than 1% of the record industry’s annual $9-billion total sales picture, sources said. But if the used-CD trend continues unchecked, some executives speculate that recycled-CD sales could generate upward of $1 billion a year--or about 20% of the CD market.

A recent music industry survey indicates that about 39% of “active” record buyers purchased at least one used CD in 1993--up 9% from a similar study taken just six months ago.

“Every year there are millions and millions of more high-quality used CDs piling up out there,” said Pete Howard, publisher and editor of ICE, a leading national CD newsletter. “As record companies continue to raise prices on new CDs and consumers become more educated about where to shop, the used-CD groundswell only stands to grow in leaps and bounds.”

Used CDs, which unlike vinyl or cassettes don’t deteriorate significantly with age, sound as good as new and cost only about half the price of new discs.

For consumers, this means retailers charge $9 or less for the most popular used CDs as opposed to the suggested $16.98 for new top-line releases. Used-CD versions of older albums by lesser known artists can be purchased for as low as $1.

Vendors who carry used CDs disagree with the record company position that secondhand sales reduce the amount of money consumers spend on new product. In fact, they believe used-CD transactions actually stimulate sales of new albums.

When buying used CDs, merchants generally offer patrons between 50 cents to $6 credit, depending on their resale value. Such transactions not only allow retailers to pocket about 100% profit on resales, they provide customers with extra cash to trade in on new more expensive items.

In addition, the Wherehouse’s Jesse maintains that patrons who trade in used merchandise frequently turn out to be repeat customers who purchase two or three CDs at a time. Such positive consumer reaction has given Jesse’s firm reason to be optimistic about a prosperous future in the used-CD market.

“The only thing we’re responding to at this point is the customer’s desire,” Jesse said. “We’re in the middle of a recession, and what we’re finding out is that used CDs are a hip way to save money. While we are certainly paying a dear price in co-op ad funds for this experiment, the pressure only gives us a greater sense of urgency to find out just how big the used-CD market actually is.”