Just about a year ago, we discussed the music industry’s intent to “decommoditize their products." The problem with that strategy is that their products are essentially commodities, and should therefore become vulnerable to low cost retailers. That process has actually begun sometime ago, with Wal-Mart and Target responsible for an ever growing percentage of CD sales.

But the industry’s reluctance to actually compete for sales on anything but price — to refuse to recognize they merely sell a commodity product — has dampened overall sales. (Basic economics tells us that lower prices = higher sales).

Since then, I’ve become convinced that the lack of competitive pricing — both within music, as well as vis-a-vis other forms of entertainment — has been in large part responsible for the declining CD sales. The price fixing scandal gets some credit for this — though the roots of the problem go much, much deeper than that. The RIAA can blame P2P all they want, but the smart money knows there’s more to this story than meets the eye.

So it was with great interest that I read of a new tack the industry is now trying: Offering both “stripped-down or fully loaded” CDs:

“While the major record companies continue to discount new releases or even slash prices to try to counter file-sharing and widespread CD burning, some music executives are quietly trying to expand the top end of the market. The average retail price of an album slid 4 percent in the third quarter to $12.95 – a new low, according to NPD Group, a research company. Yet some labels are pushing tricked-out versions of big titles that carry their highest prices ever.

There’s a basic business logic behind the move to test the upper limit, executives say. If labels must cut prices and sacrifice profits on the mass market, they must try to cover the difference by targeting niches of hard core fans who are willing to shoulder higher prices for their favorite acts. “

This makes sense, given a study by the Handleman Company. They discoverd that less than 1/4 of all music buyers are responsible for 62 percent of album sales, buying a CD per month.   

To appeal to these hardcores, Labels have begun putting out “Deluxe” editions of CDs:

Green Day’s "American Idiot" can be had for $10 for a "POD" (plain old CD) — or for 150% more ($25), you get the premuim package, including a 52-page hardcover book.

• For $24, Metallica’s "Some Kind of Monster" includes a band t-shirt.   

Eminem’s Encore album will set you back $27, but you get 25 glossy photos plus bonus Internet access to Eminem cellphone ringtones.

U2′s "How to Dismantle an Atomic Bomb" will cost you $10 (or less) for the disc, or $32 for the "collector’s edition" including DVD and 50-page hardcover book (Priced inbetween is a CD/DVD w/o book.)

Celine Dion’s "Miracle," is $14, or for CD; For $27, you can get the 60 page Anne Geddes photo;

We previously discussed the dual disc DVD/CD phenomenon. Tomorrow, we’ll take a look at how the CD side of the industry may not realize it yet, but they are in the process of morphing into the DVD industry . . .

 

Sources:
$10 for a Plain CD or $32 With the Extras
Jeff Leeds
NYT, December 27, 2004
http://www.nytimes.com/2004/12/27/business/media/27music.html

Category: Finance, Music

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “Music Industry Responding (slowly) to Pricing Issues”

  1. BusinessBits says:

    The Big Picture on CD sales

    A recent post by The Big Picture gives a comprehensive overview of the recording industry’s response to becoming commoditized. Where do you find the highest margins? Duh, the hardcore listeners. The same ideas are supported by Seth Godin’s post about…

  2. john brown says:

    This from Sydney Morning Herald, 30 January 2004:
    “A former in-house lawyer for the Australian Recording Industry Association, Alex Malik, conducted the research as part of his PhD into music copyright enforcement. He argues that internet file-sharing is not to blame for falling music sales, but reduced musical choices.” See: http://www.smh.com.au/news/Music/CD-retailers-advocate-nicensafe/2004/12/29/1103996608131.html
    (may require free registration)

  3. David Bennett says:

    I wonder if the record industry can adjust price or other wise. Could it be structural? Are there so many special interests and niche industries built around each product, by this I mean each album and artist, that to change things would require overthrowing the real powers that be? Can the industry behave rationally?

    I think it plausible that the various “players” will desperately hold their bits of turf, dismissing failed products as “losers,” gloating over colleagues forced out by their identification with them since this makes the remaints “winners,” and dismissing products sprouting outside of the old industry as irrelevant.

  4. Alex Malik says:

    Hi there,
    I’ve followed these pricing and availability issues with a great deal of interest as part of my academic studies. The first thing I have noticed is that the Australian market for recorded music appears to be very similar to the United States market. Both markets are dominated by 4 “Majors” and a very zealous industry association. In both countries, not only do CDs appear to be overpriced, but there appears to be an ever reducing variety in available sound recordings much to the chagrin of music consumers. I’ve also looked into the market for “legitimate” MP3s and have found that relative to CDs, MP3s are very expensive. I invite you to have a look at the study at:

    http://www.themusic.com.au/im_m/guests.php
    http://www.themusic.com.au/im_m/guests2.php

  5. peacegully says:

    the music industry is a gimmik. Record labels are cooperating with the FEDS and investing into anti- piracy than investing into good talented artists. Payola is the reason all this piracy started. Clear Channel is a Monopolistic corporation, it controls, sets the standards for everything, Radio Stations take payola from Record Labels so that their wack artists songs can be spinned 1,000 times a month. That’s why there is an emergence of the underground coming to the forefront. The Music is wack now, just corporate endorsements and gimmicks control these so-called talented artists. Blame Piracy, yeah right, Blame the Record Label Choices in the wack artists they fund to go on stage. There will be a change, and I will be in charge.

    PEACE

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