Universal Music Group, the world’s largest record company, sent shockwaves through the music industry Wednesday with a plan to slash the wholesale price of its CDs by as much as 25 percent.
Customers may see an even steeper drop in the price of some CDs, as the record giant cut the suggested retail price of its new releases and mainline offerings 31 percent, to $12.98 from $18.98.
The surprise move to boost volume comes as record companies have blamed online piracy for a plunge in music sales. The action stunned retailers and artists, who may face a smaller intake from each CD sale and put competitors under pressure to come up with a response.
“This is like a bombshell,” said Don Van Cleave, a Birmingham, Ala.- music retailer who heads a coalition of about six dozen independent record stores. “People are like, ‘Oh my God, are you kidding?’ “
The price cuts are set to take effect Oct. 1, Universal Music said.
The company, which accounts for almost a third of U.S. new music sales, is home to 50 Cent, Limp Bizkit and Jay-Z, among many others.
The company said wholesale price cuts for albums by its biggest artists, including Eminem and Shania Twain, would be about 16 percent, to $10.10 from $12.02. The new pricing doesn’t include Latin or classical recordings.
Universal also jolted retailers by disclosing a plan to halt discounts and “positioning” fees for prominent shelf placement–two long-standing industry customs–and redirect its efforts toward enhanced advertising. Many retail chains earn more money from fees than they do from selling CDs.
Doug Morris, Universal Music’s chairman, said the price cuts were intended “to reinvigorate the music business in North America.” The company said the lower prices would be maintained at least through the year-end holidays.
By slashing prices, Universal is offering consumers a carrot, just when the Recording Industry Association of America has been wielding a stick in the form of threatened litigation against those who trade songs online without paying.
Only days ago, the trade association disclosed that U.S. music shipments dropped 15 percent in the first half of the year, twice the rate of decline a year earlier.
Executives from Sony Corp.’s Sony Music Group, AOL Time Warner’s Warner Music Group, the Bertelsmann Music Group and EMI Group declined to comment Wednesday on Universal’s move.
Privately, several competitors characterized the price reduction as a short-term solution intended to bolster the company’s holiday numbers and predicted it would not last.
Competing executives also said Universal could lose hundreds of millions of dollars in revenue and find it very difficult to reimpose higher prices if the cuts don’t draw customers back to stores in huge numbers.
If sales don’t rise sharply, the plan may trim the paychecks of many Universal recording artists, whose royalties are based on their albums’ wholesale price.
But several artist managers expressed support for the move.
“As a company concerned mostly with overall artist development, we feel anything that increases consumer appetite for music–as a price decrease should–is good for the artist,” said Jeff Kwatinetz, chief executive of management giant the Firm, whose Universal clients include Mary J. Blige and Limp Bizkit.
On Wednesday, some industry observers voiced concern that Universal’s move would validate arguments that CDs have been overpriced–a common argument among illegal downloaders.
But Universal executives characterized the price shift as a “bold” effort to rescue music in the United States, the world’s biggest music market, from devastation.
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Universal Music Group is the parent company of 13 U.S. labels, ranging from Island Def Jam Music Group (with such divisions as Murder Inc. Records and Roc-A-Fella Records) to Geffen Records to Motown Records to MCA Nashville. A sampling of Universal’s roster of artists:
– 50 Cent
– Ashanti
– Black Eyed Peas
– blink-182
– Common
– Counting Crows
– Drive-By Truckers
– Eminem
– Ja Rule
– Jack Johnson
– Jay-Z
– Jurassic 5
– Limp Bizkit
– Nelly
– Queens Of The Stone Age
– Sum 41
– The Roots
– U2
