Peter Kafka

Recent Posts by Peter Kafka

Big Music’s Digital Strategy: Cheap CDs

Good chance that if you’re reading this story, you haven’t bought a CD in a long time. Would you think about it if CDs were cheaper?

That’s what Universal Music Group is hoping. The world’s biggest music label is pushing a plan to sell all its CDs at a retail price of $10 or less, Billboard reports. Given that all the big labels are currently selling discs at wholesale prices of $10 to $12, that’s a big price chop.

(An update from UMG, which says it hasn’t committed to the new pricing: “This test comes after extensive consumer research and conversations with our retail partners, and we will be looking at such variables as greater selection at sharper pricing on front-line releases. We expect to begin the test in Q2.”)

And it has been a long time coming, since on the Web, the price of an album ranges from nothing (via legal streaming sites and pirate services) to $9.99 or so on Apple’s (AAPL) iTunes.

You could argue that people still buying physical discs are unlikely to be comparing prices with digital alternatives. But there is indeed evidence that consumers respond to cheaper discs. Billboard relays the example of Trans World Entertainment (TWMC), which runs the F.Y.E. and Coconuts chains:

In the last few months, Trans World Entertainment began testing the $9.99 price point in over 100 stores, while Wal-Mart has been telling the majors to release shorter albums at lower prices more frequently.

The Trans World test–in which most independents and every major except for the Warner Music Group participated–produced units sales increase of more than 100%, according to label executives who participated in the tests. The Trans World test helped sell the new pricing model to the Universal labels, sources say.

On the reluctance by other majors to so far address the $10 retail price point issue, one source says, “The definition of idiocy is doing the same thing over and over and expecting a different result. Things are not going to get better for CD sales unless the price point is addressed. One thing that the Trans World test shows for sure, $10 will drive sales and traffic.”

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— Gitesh Pandya of comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”