CD Prices on the Rise Again

Universal promised $12.98 CDs. So why is D12 almost $20?

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Last fall, music giant Universal announced a sweeping plan to cut the price of new records by thirty percent -- with some CDs selling for just $12.98. But anyone checking out racks at a music store will see recent releases from Universal artists such as D12, Hoobastank and Kanye West still selling for $14.99 to $18.98.

In April, Universal officially raised its suggested retail prices by one dollar. The company thought its gamble of charging less would spark massive sales. It didn't. The price cuts only hurt profitability. "We didn't get the increased sales we needed," says Jim Urie, president of Universal Music and Video Distribution. But he points out that Universal still offers the lowest prices among the major labels.

Universal's effort has also been thwarted by some retailers. Physically repricing millions of records at many chains is a time-consuming process. And many indie retailers had refused to go along with the plan, since it eliminated some advertising dollars that Universal had offered in exchange for premium placement. Sources say roughly half of music stores have adopted the price cuts.

While the albums topping the charts aren't yet a bargain, the back catalog of CDs that have been out for longer than eighteen months have helped overall prices inch down. At this time last year, the average full-length CD sold for $13.79; today, it's $13.29, according to marketing-information firm NPD MusicWatch. In early May, Warner Music announced a new plan to market some old titles for $9.98 to $11.98, including artists such as Madonna, Missy Elliott and Prince. For music shoppers looking for deals, the oldies are the only place to go.

Despite the imperative of making CD prices compete with free music on the Net and other entertainment options such as DVDs and video games, many retailers and labels have resisted the chance to cut prices. Right now, retailers, who are benefiting from a nine percent climb in music sales so far this year, have little incentive to drop prices on the best sellers. "If you have a hot new release like Usher, people are going to pay $18.99," says Clark Benson, CEO of the market-research firm Almighty Institute of Music Retail.

But big retailers such as Best Buy and Wal-Mart continue to gain market share by selling records for less than $10. "We continue to hear from consumers that CDs are too expensive," says Gary Arnold, senior vice president of entertainment at Best Buy. "The music industry needs to think with consumer glasses on."

Rival labels are not only hesitant to cut prices but may even be raising them. News reports have suggested that some labels want to boost the price of singles from ninety-nine cents to $1.25 at Apple's iTunes Music Store, though Apple denies it. But prices for some albums have climbed at iTunes, going beyond the usual $9.99 price per CD -- N.E.R.D.'s Fly or Die and Pink Floyd's The Dark Side of the Moon now sell for $13.99 and $14.99, respectively. Apple CEO Steve Jobs says labels could make more money selling full albums for $9.99 than one or two choice cuts for ninety-nine cents each. "We see prices of albums coming down and not going up," says Jobs.

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