Is Apple Setting CD Prices?

Shins_2Last week, we noted that the Top 5 Amazon Music Sellers Are Under $10. (You can see their Bestsellers here and the sale junk here).

Now, we’ve long lamented the recording industry’s stubborn refusal to be more price competitive with other forms of entertainment has hurt sales. The unit sales of discs have suffered from competition with DVDs, satellite radio, multiplayer games, blogging, and the internet in general.

A friend in the industry agrees that price has become key. He has an important position in the biz, and he anonymously explains what has been motivating these price cuts: Apple iTunes. The 99 cent song and the $10 album is the prime driver of the physical CD price cuts.

Read on:

The biggest thing driving
prices to $9.99 is iTunes. Physical retailers are pressuring the labels downward
on price (of course, Wal-Mart is the biggest culprit) because they don’t want to
be undercut by iTunes 9.99 on all single albums.  We’re rapidly moving to a 9.99
world on the big sellers (the ones stocked in Target and Wal-Mart and Best

To accomplish this, I am
told, particularly on new releases, the labels are doing what they historically
did in the physical world and buying into "retail" programs — in essence,
paying for price and positioning or other marketing tools on Amazon by giving them functional breaks.  And you’ll note that 3 of the four examples you cite
are EMI releases (CBR, Norah, Beatles). 

EMI is in such bad shape, they are
doing whatever they can to move stuff.  And with Corrine’s appearance on Oprah
and with Norah out this week, they are pulling out all the stops to make these
records big stories (CBR went from 26 to I think 4 on the chart, mostly as a
result of Oprah).  The hope is that they can then go back up to normal price
later with a "must-have" product.

The Shins record is on
Sub-Pop so they likely have a lower suggested retail price anyway to begin with
(probably $13.98) so it’s not really that big a discount for an indie (likely
only 10% off normal wholesale to get it down).

Now Regina Spektor is a
more interesting case.  She’s basically an unknown artist and they’re trying to
get some traction by giving the record away (and they’re doing this more and
more on new/unknown artists). 

So yes, there is pricing pressure, caused mostly by the success of iTunes and the falling physical sales
market.  Without iTunes, the downward pressure would be substantially less.

I find it fascinating that all of the other economic competition to CDs we have mentioned — DVDs, multiplayer games, internet, etc. have been unable to force the industry to lower prices, and so they have lost unit sales.  But iTunes, in the industry’s own space, couldn’t be ignored.

Great stuff, G. Thanks for the insight.

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