Universal cuts CD prices to combat poor sales

Years late, Universal cuts CD prices to combat poor sales
By Chris Foresman

Sales of digital downloads have not been enough to make up for the decline of CD sales since its peak in 2000. Universal Music Group plans to soften the fall of CD sales by dropping prices across the board, to a maximum of $10.

The company plans to test lower prices beginning next month and continuing throughout 2010. Nearly all of UMG's CDs will priced between $6 and $10. UMG is hoping that increased volume will make up for the price drop, and the company plans to create more higher-priced "deluxe" versions for more hardcore fans.

"We think [the new pricing program] will really bring new life into the physical format," Universal Music Group Distribution president and CEO Jim Urie told Billboard.

Retailers have been clamoring for lower retails prices, with many believing that $10 is the magic number to spur sales. (I'll admit, I rarely buy a physical CD for more than $10 these days). A recent test from Trans World Entertainment showed that a $9.99 price point doubled CD sales in over 100 of its stores.

Forrester analyst Mark Mulligan thinks labels may have to consider pushing prices as low as $5 to further slow the decline of CD sales. "The CD is a dying music product format, but it has some life left in it because downloads haven't generated the format replacement they were expected to," he wrote. "With all previous music formats the successor format was firmly in the ascendancy by the time its predecessor was in terminal decline."

However, digital downloads won't ever generate format replacement. Music on CDs is already in digital format—if you own the CD already, there's no benefit in "replacing" it with a digital download. Furthermore, it will be hard to justify spending $10 on a compressed digital download over $6 for an actual physical disc that can be ripped into iTunes or any other media software in a matter of minutes, and can be done using lossless encoding (if so desired).

iTunes LP, thought by the record labels to help save the digital album from succumbing to single track downloads, isn't making much of a splash with consumers, either.

Effectively, what UMG is doing—and what other labels will do if they also decide that lowering prices will prop up dying CD sales—is giving consumers the expectation that albums should cost even less than $9.99. Because once consumers become accustomed to getting a whole album in physical form for $6, you'll have a much harder time convincing them to buy downloaded albums for more money later. Lowering prices on CDs will increase sales in the short term—good for labels because CD sales still account for about 65 percent of their revenue—but it will only slow its demise, and slow the uptake of digital as a primary format.