DCC Archive CD prices set to take a plunge (Reuters)

"CD prices set to take a plunge"
Reuters
December 28, 2001
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Shoppers may think they have seen enough bargains this holiday season, but CDs at $9.99 may soon be a standard offer at music stores as retailers slash prices in bid to battle the scourge of online music piracy. So for studios, artists and retailers alike, 2001 is closing out as a year of few sweet notes as the industry is also being hit by a lack of blockbuster pop music releases.

"It looks like it will be another year of flat CD sales and I think to some degree that's got to be attributed to the fact that there's so much music available online," Tom Adams, president of entertainment industry research and consulting firm Adams Media Research said.

"I also think (the price cutting) is also as much to do with the fact that the economy is terrible and holiday sales were off overall," he told Reuters.

Alternative media such as the increasingly popular DVDs also successfully won consumer interest, dampening sales of other entertainment products, analysts said on Thursday.

Adams said the music industry may not know the full extent of the piracy impact on CD sales since many music-swapping services have opted to discard single servers, which allowed better monitoring of online traffic in the days of Napster.

Although the once popular music copying service Napster service has been idle since July, analysts say the Internet song-swapping has just kept evolving, pushing retailers and recording companies into the cold.

Price wars beginning?
Just to show how edgy the retailers have become, popular music retailer HMV already has a sale offer on its Web site dubbed the '02 Blowout Sale', while rival Virgin--part of Richard Branson's Virgin Entertainment Group--calls its markdown blitz the Red Sale.

Virgin, which has a megastore in New York's Times Square, is offering CDs priced as low as $3.99, with more other popular hits priced at $9.99.

Discounts of up to 80 percent is a far cry from the average prices of newly released CDs of $17.99 to $14.99, a step which analysts said is bound to stifle profits for both retailers and recording companies.

"The record company is going to make their profit one way or another on a per CD basis, but they need to reevaluate their business model on the whole because it's clear that these free online services have eviscerated a large part of their market," said Kenneth Freundlich, an entertainment attorney in Los Angeles.

If a CD sells for $13, a record company takes in about $8, of which it deducts artist, publishing royalties and manufacturing, promotional and marketing costs.

The artist generally makes between 50 cents and 75 cents per CD, while the record company clears between $3 and $4 per CD. The artist has to pay back advances paid by the record firm, further cutting the artists' royalty, which often dwindles to nothing, according to music industry insiders.

"(We) believe music software CD prices may soon permanently decline to $9.99 given weak sell-through of new artists and continued Internet piracy that appears unstoppable," Peter Caruso, a retail analyst at Merrill Lynch said.

"This should force a shakeout in the music retail business," he added in a research note.

Adams, at Adams Media Research, said the music industry was also not being helped by its slow transition into full subscription online music services.

"I think we are in for a slow transition to a very different model for the audio distribution business where a lot more happens online through legitimate services like those being launched now," said Adams.

"I think that will be a growth business which ends up generating revenues for rights holders and probably to some extent at the expense of CD sales," he added.

Among the recently launched legitimate online music services is Pressplay, an online music joint venture between Sony Corp. and Vivendi Universal.

Pressplay's debut on December 19 came on the back of a test launch for a similar service called MusicNet, backed by big record labels, including AOL Time Warner's Warner Music Group, Bertelsmann AG's BMG Entertainment, and EMI, along with Internet media delivery service RealNetworks.

EMI owns a 43 percent stake in British books and music retailer HMV Media Group

 

Thank God it's about time! I find it really hard to swallow paying $15.00 for something that costs about $1.50 to produce!

End of rant.

 

Welllll... it's not really $1.50 to produce. Yeah, it costs $1.50 to make the physical product, but don't forget how much it costs to record the thing, pay a producer, pay a photographyer/graphics artist, manager, accountant, buy equipment, etc, etc, etc... and all the time it takes to write the songs, of course.

And that's not even covering advertising, etc.

(Believe me, I know - yeah, it cost us $1500ish to print the our cd, but that doesn't even come close to covering expensese.)

 

I understand your point Zoo but the ones that I'm talking about are the re-releases that all the above mentioned have been duely paid a long time ago ie. Rolling Stones, Led Zepplin and the ton of stuff out there.

 

good point!

 

BUT, if the companies find a way to make online services viable and agreeable to the consumer it could be bad news for those of us who want quality sound on a physical meduim. It will cost more to produce CDs, SACD, or whatever format, and compressed files from the net will become popular. If a popular compressed format comes along that sounds good enough for serious listening the record coimpanies may not be so qwick to embrace it.

We shall see...Anyway, i'm already starting to see reissue prices plunge.

 

Case in point about prices. Our local NRM Music is going out of business. They said it was corporate thing. Their top CD's are priced at $17.99, $18.99 and $19.99 and are on sale at 30% off because of going out of business. That brings the price down to what I normally pay at Wal-Mart and KMART. Hmmm. Maybe these companies will learn that we might buy a few more CD's if they were cheaper.

 

Different stores have different kinds of overhead demands. Tower charges enough, it would seem, and yet they are in disastrous financial shape. The price of the lease is a big factor. Imagine how many units have to be sold daily to pay for the rent at a good mall location. Then there's employee theft, and customer theft. I wouldn't want to run a CD store!

I don't know Wal-Mart's set-up, but I imagine they get a heck of a deal buying in their kind of quantities. Contrast that with a private store having to pay jobbers or whatever they're called.

A guy I knew who used to run a small store used to buy his top CDs at Best Buy at retail (!) because it was cheaper for him to do it that way than pay what his distributor charged him. Then he'd mark them up a little for resale to people who liked his shop better than Best Buy.

 

If at all possible, I would advise against buying from the K and Wal Marts of the world, because I don't like their stand on censorship. Anyone remember the "Amorica" cover?

Incidentally, what good evidence do these gurus have that online music is killing CD sales? Didn't Napster get squashed? I know there are other options, but I was under the impression they weren't as popular.

Let's consider some alternative hypotheses for the sales slump:

-crappy releases by mega-name artists (see related LA Times article elsewhere)

-the economy SUCKS, so people have less $$$ to spend on luxury-type items

 

Music isn't a luxury !!!!

 

"CD prices set to take a plunge"
That’s the funniest headline I’ve ever read! Music prices are not going to change!

 

>>>>>it's not really $1.50 to produce. Yeah, it costs $1.50 to make the physical product, but don't forget how much it costs to record the thing, pay a producer, pay a photographyer/graphics artist, manager, accountant, buy equipment, etc, etc, etc... and all the time it takes to write the songs, of course.


>>>>>Dude...in the end the ARTIST pays for most of that out of his/her royalties.
Thats why Lesley Gore, who sold over 25 MILLION dollars worth of sales for Mercury, recieved ONE check for 25,000 from Mercury in 1965..and not another dime untill she sued in 1998!!

 

Uhhh, can you eat or drink a CD? Use it to pay your mortgage/rent?

For people who can't find work (count me among *many* this year), music *is* a luxury.

 

Patrick, I have to agree with you, it is a luxury, but damn, that's one luxury that would be hard to live without. I could go without buying new music if I had to, but I would hate like hell to have to sell my CD collection because I needed the money. I hope 2002 works out for you.

Your Fellow Guitar Buddy - ED

 

I really doubt if CDs will drop to $10 or even drop at all; however, the core point of the Reuters article demonstrates that although it does not cost a lot to actually produce a CD, there are many, many costs involved to actually get it to the marketplace.

 

While I am seeing some reissues drop in price at some retail outlets, Alan T. is right on target with his cycicism. Everytime the record companies announce a price reduction they boost the price of the top line CDs and claim that it is the outragious artists contracts that are at fault. Of course, if you're talking about an established artist, the companies are more than willing to offer them every little thing they want.

 

I can't believe how so many sophisticated people can be so naive, here!

These guys have an extraordinarily slow year, a few outlets discount CD's...at Christmas, big coincidence, right ? ...and you feel that next week you are going to go shopping and see prices deep discounted to $9.99 all over the USA! Amazing!

Don't hold your breath!