Universal Music slashing CD prices

LOS ANGELES --The world's largest recording company said Wednesday it would slash wholesale CD prices in a bid to revive lagging music sales, which have dropped 31 percent industry-wide in the last three years.\nUniversal Music Group said it would cut the suggested sale price on a majority of its CDs by $6 to $12.98. The company hopes retailers will follow its lead and drop their CD prices to around $10 or less. The price changes would go into effect by Oct. 1.\n"We expect (this) will invigorate the music market in North America," UMG Chairman and CEO Doug Morris said in a conference call Wednesday.\nIt was not immediately clear how retailers or other record companies would respond to the move, which comes as music sales are picking up on the Internet with Apple Computer Inc.'s breakthrough 99-cent-a-song offering. Company officials said they had not discussed the pricing strategy with retailers, who would be notified formally Thursday.\nOfficials at the National Association of Recording Merchandisers did not return calls Thursday.\nKevin Milligan, vice president of merchandising at Torrance, Calif.-based record retailer Wherehouse Entertainment Inc., said he had not received notice from UMG, but that in general, the move is good news for consumers.\n"Whether it will ultimately be good news for retail? I think it's still up in the air," he said.\nTraditional music retailers such as Tower and Wherehouse have been suffering as large stores such as Best Buy, Target and Wal-Mart Stores Inc. can afford to sell music at a loss, covered by sales of more profitable items.\nUMG's current wholesale price for a CD album is $12.02, with a manufacturer suggested retail price of $18.98. Under the new pricing structure, the wholesale price would be $9.09. The wholesale price for CDs by a handful of performers, including Eminem and Shania Twain, would be about a dollar more, said Jim Urie, president of Universal Music & Video Distribution.\nThe company also said it would cut wholesale prices on cassettes and change the suggested retail price to $8.98. Latin recordings and multiple disk packages or CD box sets would not be included in the pricing change.\n"Our new pricing model will enable U.S. retailers to offer music at a much more appealing price point in comparison to other entertainment products," Urie said. "We are confident this pricing approach will drive music fans back into retail stores."\nOfficials at EMI, BMG and Warner Music Group declined to comment. Sony Music Group officials could not be reached immediately.\nUMG also said it would no longer give retailers co-op advertising or discounts, which are common in exchange for favorable product positioning at stores.\nJosh Bernoff, an analyst with Forrester Research, Inc. said the decision to cut prices underscores how badly the industry has been hurting.\n"That is very significant. That's basically saying 'we give up,'" Bernoff said.\nRevenue from album sales has declined from $14.6 billion in 1999 to $12.6 billion in 2002, according to the Recording Industry Association of America, a trade group that represents the largest recording companies.\nThe recording industry blames its sales slump largely on illegal music swapping over peer-to-peer networks. The industry has begun to aggressively target people who share music using software by Kazaa and others.\nBut industry critics say the record companies have, for more than a decade, ignored the effects of soaring CD prices on sales. They also contend the artistic quality of music has deteriorated.\n"This is something that the industry has failed to address ... You could make downloading music go away tomorrow and the industry would still face challenges," said Sean Baenen, managing director of Odyssey, a consumer marketing research firm in San Francisco. "All the data suggests that quality and price are major factors to the equation."\nIn a survey conducted this year by Odyssey, 53 percent of U.S. consumers age 16 and older said they did not buy more cassettes and CDs because they have become too expensive. The survey had a 2 percent margin of error.\nIf retailers also drop their prices, Universal's move would make CDs more competitive with online services, including Apple's popular iTunes Music Store and Buy.com's BuyMusic.com.\nThose services allow consumers to purchase and download individual tracks -- usually for 99 cents -- or albums for about $10. The buyer then can burn it to a compact disc or transfer it to a supported music player. A number of companies also provide music downloads for a monthly fee.\nUMG will need a "meaningful" lift in sales to offset the price cut, said Zachary Horowitz, president and COO.\n"The challenge at retail has been keeping people coming to the stores to support the music and artists they love," Horowitz said. "We're confident from our research we'll get ... a very dramatic and sustained increase"