JPF Home Page Forums General Messages General Message Forum CD price drop announcement deceptive

Universal Music Group (UMG) recently announced what appears to be a significant drop in the list prices of their CDs. UMG stated that the list price of most of their CDs will drop from the present $18.98 a CD to $12.98 a CD. They stated that, though they can't control what prices the retailers will actually charge for the CDs, they expect the typical CD to sell for under $10 in the future.

This price drop announcement, if carried through, is commendable and could help spur an increase in the sales of CDs. But the above claims are somewhat deceptive and contain a bit of hyperbole, for these same articles also claimed that the typical wholesale price was going to drop from the present $12.02 to $9.09 per CD. This is only a $2.93, or 24.4 %, drop in the wholesale price, while UMG claims the list price will drop by $6.00, or 31.6 %.

The list price is really not that significant. It is the wholesale price that counts. The distributors and retailers prices are based the wholesale prices they have to pay, plus their own expenses in selling the CDs, plus some profit. Most distributors and retailers are presently operating with very tight margins, barely covering their costs, with little, if any, profit coming from CD sales. This is particularly true for the smaller "Mom and Pop" retailers. Consequently, the distributors and retailers are probably not going to be able to come close matching the percentage drop in their portion of a CD's price that the record company announced in their wholesale prices.

What this means is that the drop announced for the list prices is way overstated and deceptive. If the distributors and retailers could drop their adder to a CD's cost by the same percentage as the record company's drop in the wholesale price, then the final cost to the customer of a CD would drop by about 24.4 % and the list price should also drop this same percentage. This would mean that the list prices should have been announced as dropping to $18.98 x (1 - 0.244), or to $14.35.

But since it appears unlikely that the distributors and retailers will be able to drop their adders at all, the actual price to the customer will only drop by about $3.00 (the $2.93 drop in the wholesale price rounded to the nearest dollar amount) and list price should also have been announced as dropping by $3.00 to $15.98. Though this is commendable and a step in the right direction, it is not the $12.98 list price announced. The announced drop in the list price to $12.98 has set up an expectation in the final customer that, for the more mathematically astute customer, the price to the customer will also drop by the same percentage as the drop in the list prices, or, for those customers less astute mathematically, that the price to the customer of CDs will drop by $6.00. Since these drops won't be seen, the customer will think that he was deceived. The record company will probably reply that they have done their part but the distributors and retailers haven't done their part. This will create a lot of animosity and finger pointing between the record company and its distributors and retailers.

Another way to look at this is to compare the new announced list price, $9.09, to the less that $10 cost for CDs to the consumer that the record company announced that they expect. If we assume that "less than $10" means a price to the consumer of $9.99, then only $0.90, or 9 %, maximum of the product's cost is allocated to the distributor and retailer, combined. How many businesses do you know of survive on just 9 % or less of the product's cost being allocated to the distributor and retailer, combined? For most products, the portion distributed between the distributor and the retailer of a product's cost to the consumer is at least 20 % and more often about 50 %.

What is the purpose of generating this potential conflict in the marketing chain? Is the record company setting the stage for squeezing out all the independent distributors and retailers so that this record company's CDs can only be purchased from the record company's own distributors and new soon-to-be-created retail outlets? Can anyone else suggest any other reasons for this ploy by the record company?


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www.stonemarmot.com
Alternative pop-rock
"trying to make pop-rock respectable again" (as if it ever was)

I think you're right about the retail price not dropping as much as they said. I dunno. It's a helluva battle right now. I can't see how CDs could/should cost less than $10. That may be far too low. Compare it to albums from 20-30 years ago. What I'd rather see is more "value" given to the consumer and keep the price up there. And I don't mean just songs.

Me, country music, alt-country music, songwriter

Kyle, age 6, dares you to click



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My sig: Read very brief page about KYLE, age 6, and my computer project for him. Click to WePay.com

I think saying that the current wholesale price for CDs is $12.02 is deceptive.

I don't know how many of you have dealt with retailers, but when I've dealt with them the current expected wholesale price is already below $10.

Peace,
Christine
The Drop Band
www.dropband.com

My understanding also was that wholesale prices have never been above $10. I'd also bet that Wal-Mart and other have negotiated even lower wholesale prices.

I just don't see how even a $12 price for a CD is justified when I see DVDs going for $20-25. What you get from a DVD vs a CD is a HUGE difference in the quantity and cost of the content, and DVD movies have multi-million-dollar budgets they have to recoup - sometimes as much as $100 million or more. Granted they get a lot back in the theatre showings, but compared to a major-label expenditure of $1 million for a CD, it just doesn't make sense in the value comparisons.

I'm all for CDs costing $10, though. I would certainly buy more at that price.


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Larry
www.audibleresponse.com

A $10.00 retail CD would not give a very good return to the record labels.By the time the distributer and retailer took their discount and the royalties were paid to the artist and songwriters,the profit margin (if any) would not be attractive enough for the companies and share holders.Every one deserves a reasonable return on investment or else they won't invest.When you consider that music CDs contains art,actually several different forms of art,I think the price now is fair.You have the art of the songwriter, singer,musicians,engineer,producer and the label designer.If you buy a painting you will pay a lot more for it than a CD.A painting only contains the art of the painter,a few dollars worth of paint and canvas and frame.Yet most people are willing to pay hundreds of dollars to own it because it's art,it hangs on your wall and gives pleasure.A CD you can take with you to listen to where ever you go and it gives you pleasure.So why the double standard when it comes to art.

My understanding of the economics of CD manufacture is that only a very small fraction of the consumer price goes to pay for the "art" portion of it. Another small portion pays for actually making the thing.

Most of it goes to pay for the cost of selling it to you in stores and other overhead: Those preview listening stations at Barnes and Noble must be pretty expensive. Stupid videos on MTV. Subsidizing the CDs that never break even (most of them). Profits for the store, profits for the record company, payola and other advertising.

My guess is that if we just shut down MTV, CMT, and VH1 the cost of selling CDs would drop considerably.

[This message has been edited by pd (edited 09-09-2003).]

YOU want CD/'album' prices to drop to 10 bucks or less? YOU want 'all-you-can-eat' for 6 bucks on your cable bill? I want to make a living from my songs. MY songs, not my songs dumped into the pot with 50Centinem and Alien Jewel Fighters and Celina Twain and Rascal Creek. How am I gonna make anything out of $6 divided between a dozen dozen downloads per month?

COMPARABLE PRICE. A place where I eat regularly has a CD jukebox, 3 plays a buck, 7 for 2, foldin' money only. Folks routinely plug a couple of bucks in, several times a night, for the right to hear each song, of their choosing, precisely ONCE. In a public place where the only perceivable additional benefit to the purchaser is forcing everybody else to endure their dubious taste. Or not. Between 29 and 33 cents per. Some math: .33 X 3 = .99. Look familiar?

And while Roblos SanThomas are getting enough radio action to get a cut of that weekly wad from their PRO (I KNOW Carlos didn't write it) how much is little One-Hit Joe getting for his plays on that box, if it's not a special status song?

When folks start thinking about the portability and repeatability and personal preference expressed in selecting exactly the song(s) that they want, 99 cents for a legal download is a damn fine deal! Is the jukebox? That jukebox ain't getting run out of the joint by the patrons!

COMPARABLE PRICE. That place where I eat, a glass of Pepsi costs $1.25. And though the friendly ladies keep it full for me, when
it's gone... a 20-ouncer out of the walk-in at the AM/PM is .99. What does a single coffin nail go for these days? Folks may
grouse, but I see 'em pony up $5.50 for a pack (that's 27 cents per death-dagger) out of the eatery's machine nearly every time
I'm there. No repeatability. No resale value. Smoked an' gone. Five bucks fifty.

99 cents a song download is puffin' money. If an artist has a tune folks want, make it $2.79 for a 2-tune minimum (see "already
accepted entertainment-purchase practice"). So that the artist can get some traction. Or 4 for $5 (a 'mini-album'?). So that
'cherry-picking' an album comes at a premium (ever tried 'cherry-picking' at a movie theater? "But I only want to see the
love scene, the pie-in-the-groin gag and the decapitation!"). So that there's a big enough transaction (assuming that this was the extent of this customer's unique purchase) to make it practical.

99 cents is what the guy sitting next to me drinking a 2 dollar 75 cent 12-ounce longneck is paying some wireless outfit to hear that cheesy beep-blippet of "Livin' On A Prayer" when his Nokia rings. COMPARABLE PRICE.

And I, as an artist, might permit the store to price lower-demand songs, after maybe 90 days, LOWER than .99, maybe in tiers .49 to
.79 (we've all been SO brainwashed into buying the '9', haven't we?). As long as folks can, say 45-second, preview the songs, fair exchange.

NO MORE 'ALBUM PRICE'. Let each customer choose what (s)he wants, buy every song you think you MIGHT want NOW, 'cause it'll be a
2-tune minimum later if you don't! Everybody gets a good deal. Maybe not EXACTLY what each wanted, but hey, I saw "The Medallion" Saturday, it mostly sucked, and I didn't go asking for a refund
for the parts that sucked. OBTW, Jack V's set painter said to tell you "RESPECTCOPYRIGHTS". Dot org.

As to the AAC vs. MP3 vs. .wav files thing, let the consumer choose which format they want at those prices. Maybe .wav ought to
cost more because of the server space and bandwidth needed to deliver them.

As to the sound quality issue, I listen to 128kbps MP3 through a $19 set of computer speakers (with a 3" sub-box!) and, with the
exception of things with woofy synth bass, that res sounds fine for that listening environment (works in the TrooperII too!), and I get to hear the song I want when and where I want to (ultimately that's what most listeners want from their music, see 'jukebox' above), if not on my audiophile Akai bookshelf system at home (Fe present. Or is that humor? Odds on how long it takes for someone to tell me 'neither'?). Good mixes/masters are really noticeable and truly appreciated! That's it! From now on, .wav files cost 40%
more. Hey, there's always full-on CDs for the fanatics.

As to the distributor, iTuns-o'-dough,
getting 35 percent, bollocks. Set up your own, or set up a collective; if nobody
knows who you are, they sure ain't gonna find you at iTunes, so why pay THEM 35 to stay buried THERE? Didn't MP3.com prove that to thousands of us already?

Yes on prop DRM.

Discuss.


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edx.iuma.com www.soundclick.com/40LOVE www.soundclick.com/EdX

[This message has been edited by ed323 (edited 09-09-2003).]

The list prices stated in my original post above are taken directly out of the newspaper article that announced the list price cut. I agree that these wholesale prices seem high. I was wondering if maybe the newspaper article was really referring to the cost to the retailer for purchasing the CD from a UMG-owned distributor, which would make the prices stated a little more believable.

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www.stonemarmot.com
Alternative pop-rock
"trying to make pop-rock respectable again" (as if it ever was)

This page 3-of-4 seems to have the best detail and discussion of the situation UNI new pricing structure .

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edx.iuma.com www.soundclick.com/40LOVE www.soundclick.com/EdX

[This message has been edited by ed323 (edited 09-09-2003).]

ed323, I'm with ya.

A few years ago the big buzzword in the InfoTech world was "disintermediation". This means using technology and the internet to eliminate the middlemen who stand between the service delivery and the consumer and push up the price along the way. This is really getting back to the old way of buying stuff, where you got your vegatables from the farmer who grew them, not from a store where by the time the goods are packed, shipped, reshipped, put on shelves, etc, they are a week old and the price is 10 times what the farmer got.

As the web technology gets to the point now where the online commerce stuff is a turnkey package that comes with your web hosting, it is so much easier to get into the game and sell your stuff yourself. There are even places you can link with that will take care of the manufacture and shipping on demand of your own logo wearing apparel, baseball caps, etc.

One difficulty I see with selling 99-cent MP3 downloads directly is the overhead in processing credit card transactions for small amounts would be too high, so you would need to establish account balances, etc. There are sites selling downloads one at a time so it must be solvable somehow.


[This message has been edited by pd (edited 09-11-2003).]