Since its tuneful Tuesday (see our earlier discussion on XMSR) lets revisit the concept of value and music. This meme is increasingly infiltrating the mainstream.
Today’s question: "Are Compact Discs A Good Value?"
No, and the tale below is a classic example of not just that, but why the industry continues to stubbornly insist on losing sales:
You’ve heard many times on the pages of AVRev.com about how the woes of the music industry can’t be placed solely on the shoulders of peer-to-peer file swapping or piracy. The fact that the compact disc is still a poor value was never more evident to me than when I was at the mega electronics store WOW! in Long Beach, California this weekend. This staggeringly large store features a fully stocked Tower Records/Video, along with the newly merged CompUSA/Good Guys! I went in to pick up some toner for my laser printer and, for some reason, the once familiar but long forgotten desire to browse the CD racks came over me. I realized that in my collection of “must have” music, I had a gaping hole. I didn’t have the Metallica CD … And Justice for All, and I wasn’t about to break out my worn-out cassette version or download the album from Limewire for fear of Metallica’s strong-armed legal team, so I figured I’d pick up a copy at Tower Records.
I wandered up and down the aisles, remembering the days when I would actually care and get up for the upcoming release of a new album by a band I thought was amazing. Perhaps I’m showing my age as I hit my early thirties, but I just found it hard to get excited about anything I saw on the “new releases rack.” Then again, finding the next big thing wasn’t my goal. I wanted one of the best metal albums of all time and before I knew it, I was at the Metallica rack. Flipping through the CDs, I found that oh so familiar album cover with the crumbling statue of the Lady of Justice on the cover and almost didn’t flip the disc over to check the price, assuming it would be somewhere in the $11.99 to $14.99 range. Curiosity got the best of me and I flipped over the disc. To my amazement, the price tag read a staggering $18.99 and there was not the typical yellow “sale” sticker that I am so accustomed to seeing. If I wanted to rock to some “Shortest Straw” and “Harvester of Sorrow” in my car, I would have to plunk down quite bit of dough.
I have never considered myself cheap, but I found myself with a little case of sticker shock. In retail, there is a price where almost anything will sell. List your house at $50,000 over market value and, unless it’s a scorching hot market, the offers won’t come pouring in. For me, with this CD purchase, the decision came down to something simple: the $20 bill in my wallet. To go along with my craving for this Metallica disc was also craving for a strawberry smoothie at Jamba Juice. Had Tower priced the disc at what I felt to be a fair amount for a back catalogue record ($9.99 to $13.99), I would have bought it without hesitation. Because they swung for the fences, I left the disc in the bin, doing the retailer, the label and a reportedly financially starving Lars Ulrich no good whatsoever. I did buy the over-priced drink and then went home to purchase the exact disc I wanted, used, from eBay, for a little bit over $5 with $2 shipping. I know arguing over $10 here and there seems like I might be cheap, but I am not. I lunch in Beverly Hills every day, paying easily what the album would have cost me. I was making an economic protest about the value of the album. I understand overhead and royalties with the best of them, but at the same time the label has long ago paid for the production costs of such a great, multi-platinum heavy metal record. With CDs in jewel cases costing about $0.50, I was getting ripped off and I wasn’t going to stand for it, nor was I going to do anything illegal or immoral in response.
This lost “brick and mortar” sale due to an overpriced disc is becoming a common occurrence. I have often heard my friends saying, “ I just don’t buy music any more, because it’s too expensive and just not worth it,” or “Why don’t you just get it used?’ People are still buying DVDs by the millions each week, with “King Kong” selling a reported 6.5 million copies in its first week. A number-one-selling compact disc might be lucky to do 10 percent of that amount. Of course, this number could be a little skewed, as there are many more music releases in a given week than there are mainstream DVD releases, but the days of N’Sync or Eminem having first week sales well north of a million copies seem to be a thing of the past. It seems lately that even the biggest-selling albums in a particular year barely sell more than Peter Jackson’s big-budget thriller did in seven days.
The labels and retailers are committing suicide. Theyt ultimately will reap what they have sown: financial irrelevance and replacement by more competitive entertainment and digital media.
Cost Per Minute: Are Compact Discs A Good Value?
AV Revolution, April 20, 2006
Over a year ago, I noted the decaying customer service quality in a few companies: In particular, Dell got named as a significant offender. (More recently, I complained about obnoxious Dell preinstalls).
I collected a ton of emails from readers about consumer complaints (mostly from January 2005).
I should have paid closer attention. Although I did not have a position in Dell, I missed the opportunity to short it.
Since that deluge of criticism in January 2005 the stock has underperformed dramatically, down 35% from over $41 to under $27. The stock was recently downgraded to a SELL at Citigroup — see that red bar down towards the far right on big volume? That’s the downgrade. The sell rating was due in part to customer service complaints.
The XM chart shows that I am already late to this kvetch-fest — it looks like XM may already have had their Dell moment — the stock is down even more — a 50% haircut from $40 to $20. Ouch!
There’s only so much any company can cut their "basic business concept" before they start causing a problem with their consumers. That obviously happened at Dell, via the degradation of their "vaunted customer service" and it appears to be going on at XMSR.
Quite bluntly, if your business model is based on a specific concept, you screw around with that at your own risk. For Dell, it was cheap and direct sales coupled with great customer service; Saving a few pennies by outsourcing/cutting back on support, and/or switching to cheaper components (as some readers have complained about with Dell) seems to be corporate suicide.
For XM, it may be that cutting the variety of their offerings will be their Waterloo. Their raison d’etre seems to be a broad and deep variety of eclectic channels. But as Chrissy Hyndes sang so long ago: But you mess with the goods doll, honey, you gotta pay. *
Here’s the post that started the calvalcade of complaints:
"I keep getting e-mail from disgruntled XM subscribers. That their favorite channel, #51, Music Lab, has bitten the dust. I’ll print one below.
This is totally fucked up. The promise of satellite radio was to go deep, to provide something for EVERYONE! But the new regime at XM, the Infinity assholes, are turning XM into the bullshit terrestrial radio that they came from. And this makes me CRAZY!
First came channel 49, Big Tracks. With the INANE tagline "Our Classic Rock". This is just the kind of b.s. unlistenable terrestrial classic rock stations use. And the station’s got no DEPTH! Just the same fucking tracks over and over again. With no surprises.
But now it’s worse. Music Lab was booted and what did we get? MORE HITS CHANNELS!!!
We’ve got XM 17, U.S. Country, Country Superstars of the 80s and 90s.
How about XM 26, Flight 26, Modern Hits 90s and Now.
Or XM 30. Hitlist. TODAY’S Hit Music.
Or 68, The Heat, RHYTHMIC HITS!
Or 91, Viva, Latin Pop Hits.
Oh, they brought back Liquid Metal, which had been banished before, but what we’ve now got is endless b.s. hits stations, replicating what is ALREADY AVAILABLE ON XM, their only saving grace being no commercials.
This is a big deal. This is like the death of free-format FM radio, but WORSE! The golden era is OVER!
And what about the people who subscribed to XM ONLY for Music Lab? People like Craig Anderton, the electronic music and instrument GURU! Who signed up for two years, EXPECTING he’d be able to listen to his kind of music. Which he could get nowhere else, which is why he subscribed to XM.
The lunatics have taken over the asylum. DO NOT SUBSCRIBE TO XM! They don’t have Howard, and the people now running the place have their heads up their ass."
Reader responses follow . . .
UPDATE: May 23, 2006 8:21am
Nice mention of this post in Wes Phillips’s Stereophile Column this week
All of XM’s Trials
Stereophile, May 21, 2006
UPDATE: May 24, 2006 5:21pm
Geesh! The stock got shellacked today on a downgrade on subscriber expectations:
XM, the nation’s largest satellite radio provider, lowered its subscriber forecast, citing unexpected weakness in demand for its satellite radio service as well as potential legal pitfalls from a recording industry lawsuit.
It now expects to reach 8.5 million subscribers by the end of 2006, lower than its previous guidance for nine million customers by year’s end. The company had 6.5 million subscribers at the end of the first quarter.
Shares tumbled on the news, losing 11%, or $1.76, to $13.75 at 4 p.m. on the Nasdaq Stock Market.