Universal Slashing Wholesale CD Prices by 30% (1 Viewer)

[Tony-B]

BTW, what notable artists and acts or labels are on Universal (whatever Universal is)?

Universal's music division has a ton of labels. Go to their site to see all of them. They have so many popular artists, and I am too lazy to list some, so go to that site I linked to and go to some of the labels to see what they have.

 

[Thomas Newton]

2) you don't have a choice if single inventory

 

[Marc Colella]

3) multi-channel sonics

Once again, not a concern to the average consumer.

Bottom Line:

If CDs come down in price while Hi-Rez titles remain the same price - the average consumer will have no reason to purchase a Hi-Rez title.

 

[Dan Stone]

But nobody buys there and FYE is struggling-they just closed up at Phipps Plaza in Atlanta.

Guess they should have switched to be an all SACD format store and their sales would have skyrocketed! :rolleyes

 

[Dan Stone]

you don't have a choice if single inventory

How ironic to read this statement being put forth as an 'incentive' from someone who has pointed out they feel the cable television company is an unfair monopoly while at the same time they also currently subscribe to DirectTV.

When will it ever end? *LOL*

 

[Dan Stone]

I bet they will if Wal-Mart and Best buy do, otherwise they lose market share. They have lots and lots of debt, they need to build foot traffic and sales.

Yup, they should simply sell below cost and make it up in volume. The Amazon school of marketing. *LOL*

Somehow, I don't think simply lowering prices to try and compete with Wal-Mart and Best Buy is going to be the cure to Tower's ailing business. They need to differentiate themselves (such as being the more upscale type of store they once were), in a way other than simply price matching two very large companies that use loss leaders to draw traffic into the stores to support their other business lines, if they have any hopes of surviving IMHO.

 

[Rachael B]

Retailers will deny consumers any price reductions for quite some while, me thinks. Just selling off the existing inventory of higher-cost discs will take some while. Then they'll try to keep prices up to make-up for all the squeezing Universal did to them in the past. As somebody stated dropping prices tend to be "sticky". Retailers will hope for a windfall window...

 

[Justin Lane]

Lowering prices certainly will not hurt the current situation of the music biz. It will be interesting to see if any of the 4 other majors follow suit, in response to Universal's move. We will probably not see the effects of this round of price cuts for some time to come though.

J

 

[Rhett_Y]

I bet they will if Wal-Mart and Best buy do, otherwise they lose market share. They have lots and lots of debt, they need to build foot traffic and sales

If that is the case they would of been selling there cd's at the 10-13 dollar price point, to keep up with bb/cc/walmart/target........ In my area (southern california) the average cd in the big stores is 10-13 dollars, where tower is 17-19......... I haven't bought a single cd at tower records in a very long time!
R~

 

[Justin Lane]

If that is the case they would of been selling there cd's at the 10-13 dollar price point, to keep up with bb/cc/walmart/target........ In my area (southern california) the average cd in the big stores is 10-13 dollars, where tower is 17-19......... I haven't bought a single cd at tower records in a very long time!

Me neither. The only time I venture to Tower is when they have their 20-25% off sales. The Tower in Philly near City Hall has a decent Hi-res section, with titles not usually found in Best Buy. Other than that, it is usually not owth the trip.

J

 

[Kenneth Harden]

Well, it's about time!!! Did it really take them THAT long to realize $15+ is too much for a CD? Especially with all the one hit wonders and 45 minuite CD's.

I just bought a CD at Best Buy for $12.99 and it is 77:30 long (NO FILLER) - that is fine. Some pop thing that is $16.99, 45 minuites long, and only has one or two real songs is NOT!!!

 

[Lee Scoggins]

Lowering prices certainly will not hurt the current situation of the music biz.

The key is that they pick up more volume, as John pointed out earlier. If they do then they will get better financially and that may free more cash flow for hirez titles.

 

[Malcolm R]

Definitely. With a current wholesale cost of $12.02, profit starts at $12.03 (exclusive of business overhead, of course). Anyone selling at the SRP of $18.98 or higher is making boatloads of profit. And a 50%+ mark-up is just ridiculous.

 

[Lee Scoggins]

Malcolm,

Agreed. Here are the approximate costs for an album I worked on in the 90s (replication costs have dropped since then):

$1.00 Replication costs and artwork
$4.00 Record Label Profit
$3.00 Artist Royalty
$1.00 Distribution
$3.00 Retailer Profit
$12.00 Retail Price

Let's assume the sell 100,000 copies of this album and that it is a big Universal pop title.

Now let's say Universal wants to move inventory (little demand for CDs and your warehouse is full + you want to change industry dynamics)..Universal lowers its profit on this hypothetical example from $4 to $3 and the retailer gives up $1 to keep $2 per disc. universal forgoes $100,000 in profit ($4-$3*100K). Therefore it must sell an extra 100,000 copies to break even. Same for the retailer ($2/disc profit), but now the price is $10.00 instead of $12.00. I'm betting that reaching $10 is big psychological event for CDs to be perceived a "value" in the market.

That's the point of riding out the price-volume curve.

Let's go one step further. Let's assume that Universal does not care to make up for the entire lost profit but they see value (tangible and intangible) in moving the inventory. They win in the following ways:

1. More foot traffic with retailers which is one reason retailers may be fine with the $1/disc giveaway. Many retailers are very leveraged as well.
2. More incremental sales, perhaps not even on the newly priced CDs as people are maybe headed to the store to "get a bargain" and see other discs they like.
3. They gain some "goodwill" as people leading the industry and "taking action". This helps PR attention shift away from PR-destroying lawsuits over file sharing.

The question is really this:

"Will consumers flock to stores to pick up these newly priced albums, or have lawsuits and other bad moves by the industry permanently created a "culture" of file sharing?"

Just speculating but maybe the market has been lost to some extent already.

One more step: let's say you are a record executive and see that MP3 world has really permanently changed things. How do you get some of that cash flow back?

1. You know that home theaters are outselling 2 channel systems some 10:1 (or is it 20:1?) and you know that the audiophile community has picked up strongly the Super Audio format and the DVDA format somewhat (no wars please just an observation).

2. You see that hardware makers are releasing universal players and that LSI just introduced a really cheap "universal chip". You see $80 universal players coming.

3. You know that there is a valuable catalog of classic records in your vaults and you need to (1) archive the darn things as those tapes are fading and (2) unlock the potential value.

4. You notice that Super Audio hybrid release DSOTM sold north of 550,000 copies and is climbing. You are not sure how much is really Super Audio sales, but you see that hirez may be good marketing reasons to release the 10th remastering of the album.

5. You decide to start beefing up hirez sales, capture the fully priced discs, and have a new revenue stream.

6. You bet that hybrid replication will continue to fall in costs and wonder if maybe most new releases should have this new layer. All those people are starting to buy inexpensive universals since SACD/DVDA are now ubiquitous symbols like Dolby Digital and DTS on DVD players.

This is how some of my music industry buddies are thinking about the potential situation.

 

[Chet_F]

"I expect the most we'll see of this is about a $2 drop at retail, probably to around $16 in the mall stores (if they drop at all)."

Ohh come on. Who actually buys CDs from these places except people that do not have the concept of the dollar. I mean their prices are from 5 to 6 dollars more than any other place, i.e. Circuit City, best Buy, Target, Walmart, etc, etc, etc. I think the last time i bought a CD from those places was like 10 years ago.

 

[Kenneth Harden]

Well, gee, I guess they will have to live with less profit and more sales

Most artists make their money off concerts and some don't even care about making money off of CD's - as the CD's draw people to buy $50-100 tickets, which they get a HUGE chunk from.

Knock $2 off and you would really be talking:

$1.00 Replication costs and artwork
$3.00 Record Label Profit
$2.00 Artist Royalty
$1.00 Distribution
$3.00 Retailer Profit
$10.00 Retail Price

 

[Lee Scoggins]

Most artists make their money off concerts and some don't even care about making money off of CD's

Depends on the artist and the segment. Much revenue is derived from CD sales for jazz and classical and many pop/rock groups.

 

[Carlo_M]

While I think this is a step in the right direction, unfortunately Pandora's box has already been opened (file sharing). Back in the early 90's in college I remember paying $11.99 a CD, $9.99 on sale. That price was right.

I could see Lee's scenario of hi-rez acceptance happening, though I'm not 100% sure it will come to pass.

Right now I see the general public split into two main sectors (not definitive, just generalizations):

1. Those who really care about music, and buy it (maybe even the hi-rez versions).

2. Those who see music as something to have in the background, and those are usually the people who download like crazy.

Again, just generalization, surely we know a few people who cross (a music fan who downloads without remorse is probably the worst kind, IMO).

UMG is trying to get Type 2 to buy again by lowering prices, and that's well and good (hope it works, good luck!). But again, I fear Pandora's box has been opened and won't be able to close it.

They should automatically please Type 1 though, and perhaps go further by increasing hi-rez availability.

Overall I see this as a positive move by UMG and wish them success. When you can buy a DVD for less than $20, $15 on release date, there's no excuse to have single-CDs for more than $12, IMO.

 

[Seth--L]

Not exactly true. Few major symphony orchestras are still making new recordings because their high recording fees make it impossible to turn a profit . New opera recordings have been so unprofitable lately that only EMI is still attempting to make new ones. Classical music today is mostly financed by philanthropy.

 

[Kenneth Harden]

Most of the file sharing it seems is from pop/rock, not classical, jazz, etc. I don't see lots of people downloading classical (though people do) compared to pop/rock.

Also, jazz tickets are expensive!!!