On Monday, the Recording Industry Association of America filed copyright-infringement lawsuits against 261 people for sharing electronic music files over the Internet.
The association, or RIAA, has cited electronic piracy as a major cause of plummeting CD sales. But last week, one of the RIAA's members proved that it recognizes there's probably something else going on at the root of the sales problem: High prices are driving people to seek out cheaper ways to get their music.
On September 3, Universal Music Group - which accounts for nearly 30 percent of music sales worldwide - announced that it was cutting CD prices significantly, from between $16.99 and $18.99 to $12.98. The company plans to put the suggested price on a sticker on CDs, possibly starting next month. "Given the difficulties we have experienced, we are convinced it is time to do something dramatic to jump-start sales," said Universal Music President Zach Horowitz at a press conference.
In the first half of 2003, sales of CDs dropped 10 percent compared to last year, and that was just the latest decline. Sales have been slumping since the late '90s.
Consumers will clearly be the big winners with dropping prices. But independent record stores, such as the Quad Cities' two Co-op stores, could also reap the benefits.
"I've got my fingers crossed," said Reid Robinson, owner of the Co-op stores in Davenport and Moline. Robinson is excited for two reasons. Lower prices will probably mean more sales, first of all. But perhaps more importantly, discount retailers such as Best Buy might not pass the savings onto customers, and stores such as Co-op could get new customers.
The change will probably cut into retailers' margins for CDs, because the drop in the wholesale price to retailers will not be as great as the cut in suggested retail price. According to the Washington Post, while the suggested prices will be cut between $4.01 and $6.01 per disc, what retailers pay will drop just less than $3 per item, and $2 for major artists such as Eminem, who records for Universal.
"The issue then is going to be whether the buying public will buy more product," Robinson said. "Will it drive people that far?"
Robinson thinks so. The ease of file sharing has been the primary scapegoat for poor CD sales, but price has been a contributing factor; increasing prices "forced" people to download online, he said. Higher prices haven't hurt Co-op's business dramatically, Robinson added, because of the stores' loyal customer base.
Still, the move by Universal could have a major impact on independent retailers such as Co-op. The big question is whether huge chains such as Best Buy will lower their prices. Currently, Robinson noted, music is a "loss leader" for the discount stores - "They put things on sale for far less than they paid for them" - meant to bring people through the door. To get some profit out of music, Robinson said, "they may stick in the price ranges they're at now" rather than passing the savings onto customers.
If that happens, prices at independent retailers such as Co-op will be much more competitive with stores such as Best Buy. And that could erase the discounters' biggest advantage over the small shops.
That could be just one of the far-reaching repercussions of the price cut. Because Universal is the largest music retailer, it's likely the four other major music companies will follow its lead. "If they call the shots, everybody's got to sit up and listen," Robinson said.
If there are losers in this deal, it could be small, independent labels, he added. The big companies will be affected equally by lower prices because they're generally dealing with the same scale of business.
But smaller labels might find it more challenging. They'll either need to follow suit with the price drop and possibly lose money, or keep their prices up and risk losing customers; both options endanger their livelihood. "To have the decision made for them is rotten," Robinson said.
Still, Universal's announcement represents a good-faith effort to win back music customers. "I think their heart's in the right place," Robinson said. "They really do want to drive people into record stores."
The company's move will probably be a much more successful effort than the RIAA's lawsuits, which are essentially meant to scare people to buy - rather than download - music. Since the RIAA started subpoenaing Internet Service Provider records in June, an already steep decline in CD sales has accelerated. In other words, although the subpoenas and lawsuits have slowed file-sharing, they very possibly have stirred up a consumer backlash.
For more information on the RIAA, visit (http://www.riaa.org).
On September 3, Universal Music Group - which accounts for nearly 30 percent of music sales worldwide - announced that it was cutting CD prices significantly, from between $16.99 and $18.99 to $12.98. The company plans to put the suggested price on a sticker on CDs, possibly starting next month. "Given the difficulties we have experienced, we are convinced it is time to do something dramatic to jump-start sales," said Universal Music President Zach Horowitz at a press conference.
In the first half of 2003, sales of CDs dropped 10 percent compared to last year, and that was just the latest decline. Sales have been slumping since the late '90s.
Consumers will clearly be the big winners with dropping prices. But independent record stores, such as the Quad Cities' two Co-op stores, could also reap the benefits.
"I've got my fingers crossed," said Reid Robinson, owner of the Co-op stores in Davenport and Moline. Robinson is excited for two reasons. Lower prices will probably mean more sales, first of all. But perhaps more importantly, discount retailers such as Best Buy might not pass the savings onto customers, and stores such as Co-op could get new customers.
The change will probably cut into retailers' margins for CDs, because the drop in the wholesale price to retailers will not be as great as the cut in suggested retail price. According to the Washington Post, while the suggested prices will be cut between $4.01 and $6.01 per disc, what retailers pay will drop just less than $3 per item, and $2 for major artists such as Eminem, who records for Universal.
"The issue then is going to be whether the buying public will buy more product," Robinson said. "Will it drive people that far?"
Robinson thinks so. The ease of file sharing has been the primary scapegoat for poor CD sales, but price has been a contributing factor; increasing prices "forced" people to download online, he said. Higher prices haven't hurt Co-op's business dramatically, Robinson added, because of the stores' loyal customer base.
Still, the move by Universal could have a major impact on independent retailers such as Co-op. The big question is whether huge chains such as Best Buy will lower their prices. Currently, Robinson noted, music is a "loss leader" for the discount stores - "They put things on sale for far less than they paid for them" - meant to bring people through the door. To get some profit out of music, Robinson said, "they may stick in the price ranges they're at now" rather than passing the savings onto customers.
If that happens, prices at independent retailers such as Co-op will be much more competitive with stores such as Best Buy. And that could erase the discounters' biggest advantage over the small shops.
That could be just one of the far-reaching repercussions of the price cut. Because Universal is the largest music retailer, it's likely the four other major music companies will follow its lead. "If they call the shots, everybody's got to sit up and listen," Robinson said.
If there are losers in this deal, it could be small, independent labels, he added. The big companies will be affected equally by lower prices because they're generally dealing with the same scale of business.
But smaller labels might find it more challenging. They'll either need to follow suit with the price drop and possibly lose money, or keep their prices up and risk losing customers; both options endanger their livelihood. "To have the decision made for them is rotten," Robinson said.
Still, Universal's announcement represents a good-faith effort to win back music customers. "I think their heart's in the right place," Robinson said. "They really do want to drive people into record stores."
The company's move will probably be a much more successful effort than the RIAA's lawsuits, which are essentially meant to scare people to buy - rather than download - music. Since the RIAA started subpoenaing Internet Service Provider records in June, an already steep decline in CD sales has accelerated. In other words, although the subpoenas and lawsuits have slowed file-sharing, they very possibly have stirred up a consumer backlash.
For more information on the RIAA, visit (http://www.riaa.org).
