UMG Gets It

Yesterday, Billboard reported that Univeral Music Group (aka UMG, one of the larger music labels/distributors) is testing a new CD pricing structure where CDs will cost $10 or less in stores.

Hey! That’s my magic number.

New releases will be $10, but library titles could cost as little as $6.

UMG is looking to get 75% of the suggested price, giving stores a 25% profit margin. The 2004 Rolling Stone article on CD costs suggests Wal-Mart was getting about 30%, which is why some retailers are not happy with the announcement. But given how CD sales numbers have been plummeting, they probably don’t have a choice.

To offset the reduced revenue per unit, UMG is hoping that the lower price will sell more copies, and they plan to release more deluxe editions at a higher cost to entice the true fans.

Hey this sounds just like what I’ve been going on about for the last couple years. One of the majors gets it.

And they should. According to the article, a previous test called Trans-World involved lowering prices on library titles (for all majors except Warner Music Group) resulted in sales increases of 100%.

Before I get too carried away, there is one worrying aspect of this news:

The new UMG pricing structure for CDs won’t impact its digital pricing; the company plans to keep its current pricing for digital.

They do not plan on changing their digital pricing. Which means that many CDs will be cheaper than their digital counterparts. That’s backwards in my opinion, for reasons I’ve stated. But it does resemble another historical situation – just before the point at which CDs overtook vinyl records in sales. CDs started out being too expensive, and that slowed adoption rates. But the advantages of the newer technology eventually won people over (I’m not arguing sonic superiority, if you’re a vinylphile – but the lack of surface noise and wear, and possibility of portable applications are too big to ignore). As vinyl sales began to decline, prices began to drop to a point where the price/value ratio between vinyl and CDs was skewed towards vinyl in a big way. Shortly after, vinyl began to disappear and CDs were all that was available (ignoring cassettes, which was always a good idea).

CD prices have only recently gotten to a point where they are properly priced in the general case, and I’m afraid this may be the death rattle for the format as people are pushed, willingly or unwillingly, towards inferior compressed files.

It doesn’t have to be that way. There are alternatives. CDs are not the ultimate in quality any more, and it is very easy to distribute high quality lossless audio over the internet. Hopefully the use of FLAC by David Byrne and others will start the conversation. But this is something of a chicken-and-egg problem. Not enough media players (meaning iTunes/QuickTime and Windows Media Player) support FLAC, so these files do nothing for most people.

Then if this hurdle is overcome, we get back to the DRM problem. The music industry seems to have gotten past its love affair with DRM. Unfortunately, I could see higher quality downloads bringing it back.

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