Technology - USA TODAY

CD prices hit sour note with retailers, buyers
Mon Dec 8, 7:18 AM ET

By Michael McCarthy, USA TODAY

The free-falling music industry is finally playing a song that consumers want to hear during this holiday season: lower CD prices. Retailers have lowered the average price of CDs by 2% this year to $13.42, and cuts will accelerate in this quarter, says market researcher NPD MusicWatch.

Major retailers such as Wal-Mart, Best Buy and Circuit City are selling some new releases for less than $10, a price not seen consistently in a decade.


Universal Music Group, the world's biggest music company with artists such as Eminem (news - web sites), Shania Twain and Jay-Z, has cut wholesale and suggested list prices on most new releases by 24% to 31% for retailers who agree to certain conditions.


But holiday shoppers will need to check around to get the best deals, because prices are still all over the map. Consumers can find a $6 price difference on the same CD. The lowest prices are often limited to promotion periods, before they're jacked up. Many niche, classic or classical CDs are still listed as high as $18.99. The lowest CD prices are found online, before shipping and handling; the highest are often at bookstores.


The online-piracy-ravaged music business needs to woo music fans back into stores - particularly now. The holiday season generated a third of the U.S. music industry's $12.6 billion in sales last year.


Music executives blame rampant piracy and file sharing across "peer-to-peer" networks, such as Kazaa, for a staggering 31% sales drop in the last three years. Piracy now costs artists and record labels $700 million per year, according to Forrester Research, and the industry has started suing individual users who share files.


But lost in the furor about piracy is the fact that many consumers are buying less music because they believe CD prices are too high. Some have shifted their entertainment dollars to competitors, such as DVDs and video games.


"Many consumers perceive CDs as less valuable than they used to be," says Josh Bernoff, music analyst for Forrester Research. "They're livid over having to pay $18 for a CD with only two good tracks."


James Larson, manager of the independent Sounds music store in Manhattan's Greenwich Village neighborhood, thinks a move toward lower prices is overdue. "A lot of customers are coming in and asking about it (Universal's plan)," he says. "There's no reason why CDs should be $20; that's ridiculous. This will deter them from burning" (their own CDs).


Thanks in part to the UMG program, bargain hunters have been able to find Jay-Z's million-seller, The Black Album, for as little as $9.99 on sale at Circuit City. Other releases, such as Bon Jovi's This Left Feels Right, Sheryl Crow's The Very Best of Sheryl Crow and Ludacris' Chicken N' Beer have sold for as little as $9.88 at Wal-Mart and $9.99 at Best Buy and Tower. When they revert to non-promotional, everyday prices, these CDs typically sell for $11.99 to $13.99.


Shoppers have not seen the magic number of $9.99 this often since the price wars of the early 1990s, music experts say. The number of units selling for less than $10 has almost doubled, to nearly 9% in October vs. 5% in the fourth quarter of 2001, according to music tracker Russ Crupnick of NPD MusicWatch


"There's a lot of action in pricing from retail. There's more records on sale for $9.99," notes Alain Levy, chief executive of EMI Music.


The retailers also face increasing competition from legal online downloading. Apple's pace-setting iTunes online store has sold 17 million songs and counting, for 99 cents per tune. Wal-Mart, Microsoft, Sony, Dell and Hewlett-Packard have launched or are planning their own digital stores. Online music will account for 11% of sales in three years, and 33% by 2008, Forrester predicts.


All this activity brought down the average price for full-length CDs. From Jan. 1 to Oct. 31, the latest figures available, the average dropped to $13.42 from $13.73 in 2002, according to Crupnick.


Nearly 1% of the drop came in October, as CDs aimed at the gift season began to roll out. Since the bulk of Universal's lower-priced CDs didn't hit the market until November, Crupnick predicts holiday shoppers will see "some fairly significant price cuts" in the next few weeks. CD prices are dropping across nearly every type of retail outlet (see chart).


By contrast, the average list price for CDs during their introduction in 1983 was $21.50 and as high as $14.02 in 2000, according to the Recording Industry Association of America (news - web sites) (RIAA).





A slight bounce

Meanwhile, the combination of moderating prices and an improving economy - and maybe better albums - is sparking a modest rebound in sales for retailers. Album sales have risen in 10 of the past 12 weeks, with 20.6 million sold in the Thanksgiving week ending Nov. 30, according to Nielsen SoundScan.

But the industry still has a long way to go. Album sales in the USA are 5.0% behind last year: 549.6 million albums have been sold, vs. 578.8 million in the same period in 2002, according to Nielsen. During the first half of 2003, shipments to retailers plummeted 10%, according to the RIAA, which blames "music piracy on peer-to-peer networks and illegal CD copying" for most of the drop.

An end to the bleeding for the $28 billion global music industry might be two years away at the earliest. Informa Media Group, a researcher in London, predicts global sales will fall for the fourth year in a row in 2004, before the industry begins to grow again in 2005.

At least cheaper CD prices might do more for music sales than the RIAA threatening school kids for downloading songs on Kazaa.

But retailers, not record labels, ultimately control pricing. That's why tempers are running so high over Universal's controversial "JumpStart" plan.


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