Record Labels Getting Desperate - Cut Prices 30% Without Even Blinking
- Tech Turmoil Continues

Record Labels Getting Desperate

By Mathew Ingram - Toronto Globe and Mail September 5 2003
http://www.theglobeandmail.com/servlet/story/RTGAM.20030904.wfmath0905/BNStory/Front/?query=MATHEW+INGRAM

Universal Music, one of the five major record companies, announced
late on Wednesday that it is chopping the retail price of its "top
line" CDs by anywhere from 23 to 30 per cent. The company said it is
making this magnanimous gesture "with the aim of bringing music fans
back into retail stores."

And where are all those fans whose absence is such a concern?
Universal doesn't come right out and say it, but they are in living
rooms, university dorms and even offices around the world, downloading
MP3 files as fast as they possibly can. Universal's price cut isn't
really a magnanimous gesture at all -- it's a desperate cry for help.

Among other things, the price reduction -- a move that will likely be
copied by the other major labels -- helps to confirm the widespread
suspicion that the music industry's profit margins are truly
astronomical. How could they not be, if Universal can contemplate a
sudden 30-per-cent reduction in its CD prices without even blinking?

It's also ironic that Universal is asking retailers to help by
reducing the actual prices they charge for CDs (since few people ever
pay the full retail price for a CD). In other words, they don't want
the record stores to use the price cut to boost their own profit
margins. The irony is that Universal and the other major labels were
sanctioned not that long ago for pressuring retailers not to lower
their CD prices.

In February of 2000, the U.S. Federal Trade Commission found that the
major record labels had acted in concert to keep CD prices
artificially high, and that consumers had overpaid by as much as $500-
million (U.S.) between 1995 and 2000. Following the ruling, attorneys-
general in 43 states charged the record companies with price-fixing, a
case that was finally settled this summer; the companies agreed to pay
a total of $140-million, $64-million in cash and $76-million in CDs
donated to schools and libraries.

So is the price cut going to stop the downloading hordes? It might
help stem the flow a little, but it's unlikely to persuade large
numbers of people to give up downloading and head back to the store.
Expecting the move to help boost CD sales by 30 per cent, a forecast
made by one music industry executive, is dreaming in technicolour.

That's not just because there are millions of scofflaws out there who
love stealing music -- if that is even what downloading amounts to
(it's not quite that simple, despite the industry's ad campaign to the
contrary). More than anything, the downloading phenomenon is a symptom
of a larger problem, which is that the whole pricing structure of the
music industry is broken, and probably for good.

To get a sense of how some of the downloading hordes feel, all you
need to do is sample some of the comments made on various websites,
such as those at the tech-focused site Slashdot.org. One member
responded to the CD price cut by saying: "How generous. Rather than
making 90,000% profit on $0.02 worth of plastic, they're taking it in
the shorts with a measly 65,000%. Give me a break."

Of course, the music industry argues that its costs are higher than
they appear, and that CD sales have to cover not just marketing and
distribution but also have to make up for the money spent on bringing
in new artists -- artists who may or may not recoup that investment.
Still, the perception is that CD companies have been lining their
pockets for some time, and Universal's move will do little to alter
that view.

Whatever the actual numbers are, the fact remains that a sizeable
number of people -- the user base of Kazaa, a file-sharing network, is
estimated at more than 50 million -- have voted with their mice, and
the message they have been sending is that the music industry no
longer meets their needs. For several years now the industry has been
trying to fight that reality, and all it has done is to dig itself
deeper into the hole it is trying to get out of.

Ever since the Napster file-swapping network first appeared on the
scene in 1999, the major record labels seem to have spent most of
their time doing one of three things: a) suing the file-trading
networks and those who make use of them; b) trying (and largely
failing) to design their own downloading services; and c) keeping
prices high to maximize their dwindling profits.

The advent of Apple's iTunes music service, and the success it has had
in just the few months since its launch -- 6.5 million downloads as of
August -- shows that there are a substantial number of music fans out
there who are willing to pay money for music. They just aren't willing
to pay what they see as the drastically inflated prices charged for
CDs, and they seem to like the ability to select particular songs
rather than having to buy a whole "album."

The sooner the music industry gets religion on those two points, the
better off it will be. As someone once said, if you find yourself in a
hole the first thing you should probably do is stop digging.



__________________________________________________________________
McAfee VirusScan Online from the Netscape Network.
Comprehensive protection for your entire computer. Get your free trial today!
http://channels.netscape.com/ns/computing/mcafee/index.jsp?promo=393397

Get AOL Instant Messenger 5.1 free of charge.  Download Now!
http://aim.aol.com/aimnew/Aim/register.adp?promo=380455


portside (the left side in nautical parlance) is a
news, discussion and debate service of the Committees
of Correspondence for Democracy and Socialism. It
aims to provide varied material of interest to people
on the left.

Post            : mail to [log in to unmask]
Subscribe       : mail to [log in to unmask]
Unsubscribe     : mail to [log in to unmask]
Faq             : http://www.portside.org
List owner      : [log in to unmask]
Web address     : <http://www.yahoogroups.com/group/portside>
Digest mode     : visit Web site


Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/


VICUG-L is the Visually Impaired Computer User Group List.
To join or leave the list, send a message to
[log in to unmask]  In the body of the message, simply type
"subscribe vicug-l" or "unsubscribe vicug-l" without the quotations.
 VICUG-L is archived on the World Wide Web at
http://maelstrom.stjohns.edu/archives/vicug-l.html