UMG Aggressively Drops CD Pricing
By James Grahame
Universal Music Group has announced new retail pricing for compact discs that ranges from $6 to $10 in the hopes that reduced prices will rejuvenate sales. The new "frontline pricing structure" underscores the damage that downloadable singles have done to UMG's bottom line. Modern consumers are ruthless (and smart), preferring to lay down $1.29 for a hit single while avoiding the filler that often pads out an album.
It's amazing it took UMG this long to make this shift -- the move made strategic sense a decade ago. Back then, CD sales totalled 706.3 million units annually in the USA. By 2008, that number had slid to 360.6 million. And physical media sales continue to decline at over 15% each year.
Will it make a difference? Perhaps for a short while, but this will only slow the format's inevitable decline. From a purely analytical perspective, I might be inclined to spend $10 on a CD just to have nice artwork and a high quality backup on hand. But purchasing that disc would require me to jump into my car and then brave the throngs at Walmart (just about the only place that sells CDs around here lately). And that's assuming Walmart actually stocks the disc I'm after. Realistically, I'm far more likely to mash the iTunes button on my iPod for immediate gratification.
Wholesaler reaction has been mixed. The new pricing model carries a 25% profit margin, which has some specialty retailers concerned about evaporating profit. Walmart, on the other hand, has been pushing for lower prices and the return of shorter "EP" discs for a while.