Universal Music to Cut CD Prices to Under $13
NEW YORK (Reuters) – Universal Music Group, the world’s largest record company, on Wednesday said it will cut list prices on compact discs by as much as 30 percent in an effort to boost sales that have been stymied by free online music-sharing services such as Kazaa.
Starting in October, Universal, the home to such artists asMary J. Blige, U2 and Elton John, will trim its prices on most of its CDs to $12.98 from its current $16.98-$18.98 range of prices.
“Our research shows that the sweet spot is to sell our records below $12.98,’ said Universal Music president Zach Horowitz. “We’re confident that when we implement this we will get a dramatic and sustained increase.”
Historically, large retailers have sold new CDs at considerably less than the so-called “manufacturer suggested retail price.”
“We expect this will invigorate the music market in North America,” said Doug Morris, the label’s chief executive. “This will allow retailers (to sell) for $10 or less if they so choose.”
The price cut comes as the company has endured the enormous popularity of free music sharing services, which the labels blame for music piracy.
Universal, which is owned by Vivendi Universal, sees the price cuts as part of a larger strategy to discourage people from downloading music from the free services.
The record industry has already begun suing individual users of these services for copyright infringement. The labels have also begun offering their music to online music services that charge for each song downloaded, one of the most popular of which is Apple Computer Inc.’s iTunes.
“As people will begin to migrate from illegitimate services, they’re going to be exploring a host of options — some online and some through retail,” Horowitz said. “We felt that the most important thing we can do to encourage people to go back into stores is to reduce our prices dramatically.”
Wholesale prices for CDs would decline to $9.09 from $12.02. For a handful of bigger name artists, wholesale prices would be $10.10 for a short period of time.
Universal also said it would stop “cooperative” advertising, in which the label subsidized advertising by retailers in local markets and instead advertise directly to consumers. It will also withdraw other discounts to retailers.
“(Our buyers) haven’t had a chance to talk with Universal at this point to get details on how it might affect the business,” said a spokesman from Circuit City Stores Inc. . A spokeswoman from Best Buy Co. Inc. declined to comment.
Amazon.com Inc., Tower Records and Trans World Entertainment Corp. did not immediately return phone calls requesting comment.
The other major labels — AOL Time Warner Inc.’s Warner Music, Bertelsmann AG’s BMG, EMI Group Plc and Sony Music Group — declined to comment.
Some music executives questioned how much impact the price cuts will have.
“This doesn’t have as much impact as it looks,” one record executive said. “The labels were offering some discount programs to the retailers that would now end. So it’s not entirely clear how much of a change there is for retailers’ margins.”
Another executive noted that larger retailers like Wal-Mart Stores Inc, Best Buy and Circuit City already sell CDs at around $13 anyway to get people into the stores to buy bigger ticket items.
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“It remains to be seen what this means for the specialized retailer of CDs,” he said.
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