Wal-Mart Wants $10 CDs

Rs_960_logo_232x526539005

“There is some impending doom associated with us not helping them.”
-unnamed music industry exec

Does a CD have to cost $15.99? That’s the question mass retailers like Wal-Mart and Best Buy have been asking for some time now. The Major labels have come to realize that when Wal-mart asks a question, well, it not a request. The nation’s largest retailer is also the country’s biggest record seller, and if it cannot lower its prices — they are threatening to take their ball and go home. Wal-Mart has quietly implied it will back out of the music retialing business.

Labels claim the low price demands are impossible to achieve. Best Buy senior vice president Gary Arnold counters, “The record industry needs to refine their business models, because the consumer is the ultimate arbitrator. And the consumer feels music isn’t properly priced.

This breakdown of the cost of a typical major-label release by the independent market-research firm Almighty Institute of Music Retail shows where the money goes for a new album with a list price of $15.99.

$0.17 Musicians’ unions
$0.80 Packaging/manufacturing
$0.82 Publishing royalties
$0.80 Retail profit
$0.90 Distribution
$1.60 Artists’ royalties
$1.70 Label profit
$2.40 Marketing/promotion
$2.91 Label overhead
$3.89 Retail overhead

Whether a market-research firm who sells their work tto the industry can truly be called independent is an issue we shall save for another day. But the data provided above certainly reveals plenty of fat in the equation: Just three ill-definded and squishy line items — Marketing/promotion, Label overhead and Retail overhead — account for $9.20 of $15.99 CD.

Rolling Stone had a full article on the subject; Here’s an excerpt :

“Wal-mart wants every CD you buy to cost less than ten bucks. And the nation’s largest retailer — which moved a quarter of a trillion dollars’ worth of goods last year — usually gets its way. Suppliers who don’t accede to Wal-Mart’s “everyday low price” mantra often find their products bounced from the chain’s stores, excluded from being sold to the 138 million people who shop at a Wal-Mart store every week.

In the past decade, Wal-Mart has quietly emerged as the nation’s biggest record store. Wal-Mart now sells an estimated one out of every five major-label albums. It has so much power, industry insiders say, that what it chooses to stock can basically determine what becomes a hit. “If you don’t have a Wal-Mart account, you probably won’t have a major pop artist,” says one label executive.

Along with other giant retailers such as Best Buy and Target, Wal-Mart willingly loses money selling CDs for less than $10 (they buy most hit CDs from distributors for around $12). These companies use bargain CDs to lure consumers to the store, hoping they might also grab a boombox or a DVD player while checking out the music deals.

Less-expensive CDs are something consumers have been demanding for years. But here’s the hitch: Wal-Mart is tired of losing money on cheap CDs. It wants to keep selling them for less than $10 — $9.72, to be exact — but it wants the record industry to lower the prices at which it purchases them. Last winter, Wal-Mart asked the industry to supply it with choice albums — from new releases from alternative rockers the Killers to perennial classics such as Beatles 1 — at favorable prices. According to music-industry sources, Wal-Mart executives hinted that they could reduce Wal-Mart’s CD stock and replace it with more lucrative DVDs and video games.

“This wasn’t framed as a gentle negotiation,” says one label rep. “It’s a line in the sand — you don’t do this, then the threat is this.” (Wal-Mart denies these claims.) As a result, all of the major labels agreed to supply some popular albums to Wal-Mart’s $9.72 program. “We’re in such a competitive world, and you can’t reach consumers if you’re not in Wal-Mart,” admits another label executive.

Long overdue . . .

Sources:
Wal-Mart Wants $10 CDs
Biggest U.S. record retailer battles record labels over prices
Warren Cohen
Rolling Stone, Oct 12, 2004

http://www.rollingstone.com/news/story/_/id/6558540/thekillers

Category: Finance, Music

It’s not a community that any party has a lock on,” says Ismael Ahmed, the executive director of Access, the biggest Arab-American social services agency in the country, which is based in Dearborn. “Especially a community like this one where 60% weren’t born here. We’re not really committed to either party.”

“We were motivated when we backed Bush and we are motivated now,” says Osama Sablini, Aapac’s chairman and publisher of the Arab American newspaper, who backed Mr Bush four years ago. “The Bush administration has been a major disappointment to this community and we cannot afford four more years of this.”
-Under siege since 9/11, Arab voters shift to Kerry

When the dust settles on this election, a significant shift will have taken place in several key demographics. Due to a random twist of fate, this will be especially true in the swing states.

The resulting shift in traditional party affiliations could very well throw the election to the challenger.

Since early this year, we’ve been watching a number of key voting blocs “flip flop” (sorry) away from their prior voting patterns. The demographic ethnic groups with the greatest potential to impact the 2004 Presdiential election are both Cubans and Hispanics in Florida, and the Arabs-Americans in the Midwest.

On numerous occasions this year, we have noted, Cuban American voters in Florida continues to be a potential problem for President Bush in the upcoming election. Further, we similarly observed that the President’s support amongst Arab American’s have tumbled, and significantly for this election, in the swing states.

Whether this is a permanent change of party affiliation, or just a reaction to the present regime, is unknown. But it is clear that major changes are taking place. So says The Guardian:

Read More

Category: Politics

Of Black Helicopters & Such

Category: Finance

Projected Electoral College Vote: Swing States, 10/19/04

Category: Politics

1987 Crash Revisited

Rob Fraim is a reader of mine who puts out his own amusing comments each day via email. Today, on the 17th anniversary of the 1987 stock market crash, he put out his recollections from that day.

I found them so interesting that I suggested Rob (who is blogless) post them here. He gladly agreed. Without further adieu, here is Rob’s version of 1987 Crash Revisited

October 19 – the day that each year gives old-timers in this business a renewed facial tic and post-trauma flashbacks.

What?” you say.  “You mean you were actually there, Grandpa?  You remember the Crash of ’87?

Yes, I was, and yes I do.  Confirming rumors that I am, in fact, older than dirt I note that I was in this business in 1987 – and had been for a few years prior (I started in 1983.)

I was having dinner last week with a friend who runs a hedge fund (another graybeard, although he looks younger than me) and we ended up talking about 1987.  He had a great story about the whole thing (which I’ll let him tell you about someday if you ever get to have dinner with him.) 

So I thought I would take a moment to reflect on my own Crash Experience – and perhaps some of you will share your October 19, 1987 story (provided you’re not a whippersnapper who would be relating what was on freakin’ Sesame Street that day!  I really hate you guys.  You’re svelte and unwrinkled and smart and energetic and I’m just liable to whup you if you’re not careful.)    Maybe we’ll even get a recounting of the aforementioned dinner tale from last week.  So if you feel like it, drop me a note with your recollections.  If I get enough to make it worthwhile, perhaps I’ll compile them for sharing.)

What I Did During the War (or What Felt Like One Anway)”   or…

Dr. Strange-Broker or How I Learned to Stop Worrying and Love the Bear”  by Rob Fraim

I was 29 years old, 4 years in the business, with two young children.  I thought I had investing figured out, didn’t really, and was working for the old Dean Witter (now Morgan Stanley.)    The market had been mostly good during my relatively brief time in the business and I had survived the crucial new-guy starvation years and had built up a fairly good book.

Read More

Category: Finance

Wall Street Positioning for Year End Rally

Category: Finance

Chart of the Week: Presidential Incumbent Approval Level (2001 – 2004)

Category: Finance

Pools of Ignorance

Category: Media

The Bush vs. Kerry Ratio revisited

Category: Politics

GOP Pickup in Congress?

Category: Politics