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Friday, September 05, 2003
Universal to cut wholesale prices of CDs


Universal Music Group, whose roster of artists includes 50 Cent, U2, Elton John and Diana Krall, will cut the price of its wholesale CDs and push for a $12.98 retail cap on its discs in an attempt to woo music fans back into record stores.

The world's largest recording company hopes retailers, who have suffered as industrywide music sales dropped 31 percent the last three years, will follow its lead and pass on the savings to consumers.

Universal hopes the actual retail price of most of its CD will end up about $10 or less, comparable to the $9.99 retail price that music fans enjoyed in the early 1990s, at the height of a price war between the recording companies.

"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," said Jim Urie, president of Universal Music & Video Distribution. "We are confident this pricing approach will drive music fans back into retail stores."

If retailers also drop their prices, Universal's move would make CDs more competitive with online services, including Apple Computer Inc.'s popular iTunes Music Store and Buy.com's BuyMusic.com.

It was not immediately clear how retailers would respond to the move. Company officials said they had not discussed the pricing strategy with retailers, who would be notified formally on Thursday.

Kevin Milligan, vice president of merchandising at Torrance, Calif.-based record retailer Wherehouse Entertainment Inc., said he had not received notice from Universal, but that in general, the move is good news for consumers.

"Whether it will ultimately be good news for retail? I think it's still up in the air," he said.

Officials at the National Association of Recording Merchandisers did not return calls Wednesday. Officials at EMI, BMG and Warner Music Group declined to comment; Sony Music Group officials could not be reached.

Universal'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.

The 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.

The price changes would go into effect by Oct. 1.

The decision to cut prices underscores how badly the industry has been hurting, said Josh Bernoff, an analyst with Forrester Research, Inc. "That's basically saying `we give up'," Bernoff said.

Revenue 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.

The recording industry blames its sales slump largely on illegal music swapping over peer-to-peer networks and is expected to take legal action against hundreds of suspected file-swappers this month.

But 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.

"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."


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