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CDs Getting Cheaper

Sales slump forces labels to lower prices for new releases

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.”

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