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Universal Music To Increase Cost of CDs Print E-mail
Friday, 16 April 2004
The Los Angeles Times today is reporting that Universal Music Group, the largest record conglomerate in the world, has announced an increase in the prices of their CDs. This comes only months after UMG slashed prices in order to make CDs more competitive in a marketplace that features pay downloads as well as the dreaded “free” (or as record executives and the RIAA like to call them “illegal” downloads”). Representatives from Universal Music Group were not available for comment at the time of publishing. UMG reportedly will increase wholesale prices to $9.49 per disc (an increase of $0.40). The most popular discs will sell for a little more than $10 at the wholesale level. Despite UMG’s effort to slash prices, other labels held their prices firm over the last few months. At the same time record retailers continued to struggle with Tower Records even filing bankruptcy. It seems that retailers were not passing the wholesale savings on to consumers thus why not increase the price back to the industry standard levels?

The CD has bigger problems than being overpriced. Competing with illegal downloads is impossible; however, the problem with the CD as a format is that it no longer meets the technological or entertainment value demanded by the modern consumer. On a technological level, CDs sound better than MP3’s without question but in comparison to DVD-Audio or SACD (UMG prefers SACD but has released a number of titles in each format) the CD is pathetically underpowered. CDs (in almost all cases) do not have 5.1 surround sound, higher resolution stereo tracks (20 and 24 bits at 96 or 192 kHz sampling rates) and other added values found on the new DVD-Audio and partly on the SACD format. Despite the late rush to promote and sell lower resolution downloadable music, consumers still appreciate better quality. In the world of video, hundreds of thousands of consumers per month upgrade to HDTVs that are exponentially more expensive than traditional TVs. Even with very little HDTV programming being broadcast to date, consumers find the value proposition of a wider, more resolute TV worth $3,000 to $30,000 or even higher. Thevalue proposition of CDs is far less favorable to consumers now 20 plus years into the format’s tremendous run.

Technologically, there are formats already in the marketplace poised to replace the CD but none are better than the DVD. DVD discs (DVD-Video and even DVD-Audio) have the ability to reproduce both audio and video content simultaneously. CDs have been the method for which record companies sell consumers “albums”. An album means a collection – but why does that mean a collection of just audio tracks? Generation X (and even more so with Generation Y) was raised on media like MTV, video games and the Internet, all of which are audio-video experiences. Their Baby Boomer parents have historically been more comfortable buying collections of songs as an album be it on LP or CD. Baby Boomers are also more patient listeners who can be transported to a musical Shangri-la by two speakers. Their kids demand more.

The long term diminishing sales of prerecorded music has as much to do with the lack of video in the value proposition for a CD as it does with the overall price of a CD. Everyone from soccer moms to teenagers line up at Costco or go online to pay $19.95 for a blockbuster Hollywood movie on DVD despite the fact that $20 (or higher) is more than the $13 that a hit CD would sell for. Hot video games for Xbox and Playstation2 sell to their audience for even higher prices. An encouraging sign is that in 2003, record companies saw the segment of music videos (concerts etc…) on DVD-video spike in sales. This proves that Gen X and Gen Y want to see their music as much as they want to hear it (in surround).

With Dual Discs in development (CD on one side and DVD on the other) the idea of delivering content to consumers that satiates their lust for audio and video entertainment on the same disc is coming to fruition. MP3s can be ripped from the Red Book CD layer and the CD layer is perfect to fit into car players (despite early concerns Dual Discs were going to be too thick). The DVD layer can hold a concert video with a DTS, Dolby Digital surround sound mix for six (or more) speakers. Or the DVD layer can hold many of the audio and video elements found on a DVD-Audio disc.

Mid-way through 2004, CDs are quickly running to the end of their commercial viability as they fail to compete favorably in the marketplace with DVD-Video and video games. In order to sell significantly more CDs labels might need to drop the prices dramatically but as proven my UMG, who knows if the retailers are going to go along with the price cuts? The real solution to the dilemma of how record companies can sell more physical discs at a profitable level is to create an impressive audio-video experience that competes with DVD-Video movies. This means well-crafted surround sound mixes and CD backwards compatibility for people wanting to play discs in hundreds of millions of players. They could also provide prerecorded MP3 versions of the songs that are professionally mixed so they sound good all to go along with video content. This offering will compel consumers to buy a potentially profitable physical disc instead of buying (or stealing) the one or two hit songs from the Internet.

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