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Music Industry Responding (slowly) to Pricing Issues

Posted By Barry Ritholtz On December 29, 2004 @ 10:45 am In Finance,Music | Comments Disabled

Just about a year ago, we discussed the music industry’s intent to “decommoditize their products [1]." 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 [2] fixing [3] scandal [4] gets some credit [5] 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 [6] 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 [7]. 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" [8] 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" [9]includes a band t-shirt.   

Eminem’s Encore [10] 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" [11] 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 [12]"Miracle [12]," is $14, or for CD; For $27, you can get the 60 page Anne Geddes photo;

We previously discussed the dual disc DVD/CD [13] 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 [14]
Jeff Leeds
NYT, December 27, 2004
http://www.nytimes.com/2004/12/27/business/media/27music.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/12/music-industry-responding-slowly-to-pricing-issues/

URLs in this post:

[1] decommoditize their products: http://bigpicture.typepad.com/comments/2004/01/competing_on_ot.html

[2] price: http://www.ftc.gov/opa/2000/05/cdpres.htm

[3] fixing: http://www.mndaily.com/article.php?id=3590

[4] scandal: http://www.theregister.com/2003/07/29/labels_charged_with_pricefixing_again/

[5] credit: http://www.usatoday.com/life/music/news/2002-09-30-cd settlement_x.htm

[6] read: http://www.nytimes.com/2004/12/27/business/media/27music.html?ex=1261803600&en=49d1239df6399ffe&ei=5090&partner=rssuserland

[7] Handleman Company: http://www.handleman.com/f_news.htm

[8] Green Day’s "American Idiot": http://www.amazon.com/exec/obidos/ASIN/B0002UXBD6/thebigpictu09-20

[9] Metallica’s "Some Kind of Monster" : http://www.amazon.com/exec/obidos/ASIN/B0002DB5MM/thebigpictu09-20

[10] Eminem’s Encore: http://www.amazon.com/exec/obidos/ASIN/B0006693ZG/thebigpictu09-20

[11] U2′s "How to Dismantle an Atomic Bomb": http://www.amazon.com/exec/obidos/ASIN/B00068IOWM/thebigpictu09-20

[12] Celine Dion’s : http://www.amazon.com/exec/obidos/ASIN/B0002X5910/thebigpictu09-20

[13] dual disc DVD/CD: http://bigpicture.typepad.com/comments/2004/11/live_at_st_anns.html

[14] $10 for a Plain CD or $32 With the Extras: http://www.nytimes.com/2004/12/27/business/media/27music.html?ex=1261803600&en=49d1239df6399ffe&ei=5090&partner=rssuserland

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