CDs Getting Cheaper

Sales slump forces labels to lower prices for new releases

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Is a CD worth twenty bucks? In a year when record sales have plummeted twelve percent, consumers are answering that question with a resounding no. Label executives blame CD burning and illegal MP3 downloads for the slump, but whether or not piracy has cannibalized sales, one thing is clear: It's hard to compete with free.

"After eighteen months of declining sales, there's more consumer pressure to lower prices," says Don Van Cleave, president of the Coalition for Independent Music Stores. "You'll hear people say to each other in stores, 'Dude, don't buy that; I'll burn it for you.' You hear it so many times you want to kill people."

Rather than resort to violence, the music industry is finally beginning to take consumers' desires seriously: Labels and retailers are testing sales strategies that price new releases as low as nine dollars. Even more aggressive "developing-artist pricing" has CDs from new acts selling for $6.99 to $13.99. The strategy worked well for artists such as N.E.R.D., Norah Jones, John Mayer, Jack Johnson and the White Stripes, all of whom have albums in the Billboard 200.

"John Mayer's record has been priced below ten dollars all over the country," says Van Cleave. "Everybody's still making money on it. They let it go gold, and now they're raising the price."

A few labels have had success with a sales ploy that offers retailers rebates for each copy they sell of a given disc. Ashanti and Musiq's Juslisen, both on Island/Def Jam, entered the charts at Number One thanks to rebate offers that enabled stores to sell them for less than ten dollars. And A&M/Interscope's $3.50 rebate on the debut album by Vanessa Carlton drove the disc -- on sale for as little as $8.98 in some stores -- to Number Five its first week out. Sources at Carlton's label predict that the strategy will be used more and more in the coming months.

Most label executives insist that, even at $17.99, CDs are a good entertainment value. They hope that the lowering of prices will simply stop some consumers from burning CDs and bring them back into the stores. "We wouldn't be having this discussion if it wasn't for CD burning," says one label source.

Yet consumers and retailers alike argue that too many CDs being released today don't justify such a steep price tag. "This is partially why you've seen compilation albums take off," says Jeff Somers, head of music marketing at Amazon.com. "The value of an album isn't what it should be when you have customers saying, 'I'm paying a lot of money for this, and boy, it's not that good.'"

If a CD gets manufactured for less than a dollar, why does it cost so much to buy one? Distributors and labels emphasize that development and marketing costs are so high that even successful releases often don't make money. "A label has to sell three or four hundred thousand copies to break even," says Stan Goman, Tower Records' chief operating officer. "If they hit a home run with a big record, fine. But there aren't that many home runs."

Retailers, suffering from the industry slump, are anxious for labels to implement any new tactics that inspire people to buy more CDs. Tower Records is reportedly on the verge of bankruptcy, and other chains have had difficulty competing with chains such as Wal-Mart and Best Buy, which often price CDs below wholesale to draw consumers into the store. And DVDs -- for which prices have dropped nearly twenty-five percent since 2000 -- are increasingly winning the competition for shoppers' entertainment dollars.

Van Cleave says the labels have only started listening to retailers' pleas to lower prices since the National Association of Recording Merchandisers convention in March. Some results: Sony will be launching a series of remix EPs with a suggested list price of $8.98. Both Sony and Arista have started discount programs that suggest low list prices for older releases that are still strong sellers. Sony's Hitsavers and Arista's Star Value lines include back-catalog CDs by the likes of Mariah Carey, Pearl Jam and Sarah McLachlan, priced at less than fourteen dollars. Arista senior vice president of sales Jordan Katz says his company is starting a line of catalog releases that will sell for about $9.98.

"The length of time that catalog releases sit at frontline pricing can be three to ten years," Vince Syzdlowski of Virgin Megastores says of the labels' tendency to keep even records such as U2's 1997 album Pop priced above fifteen dollars. "That's a missed opportunity. We have a midline program where you buy three for twenty-five dollars, and it's hugely successful."

Another problem is the fact that the major labels have stopped releasing singles, in hopes of driving up album sales. In April, NARM president Pamela Horovitz issued a statement encouraging labels and distributors to "bring singles back into the marketplace," giving younger consumers a chance to hear new artists for a reasonable price and get them "into the habit of paying for music."

"The labels don't want to put anything out that hurts the main record they're selling," says Van Cleave. "But we're not in the movie business; we're in the keeping-fans-forever business."