For several years, consumers have been lamenting the high cost of recorded music. Their anger has been answered with a bold and decisive move from Universal Music Group, which recently announced that it would lower the cost of its new releases and catalog titles to a retail price of $12.98 a disc.
In case you don’t look on the back of your CD cases, Universal is the most dominant music distribution network in America, supplying more than 30 percent of all record sales. While the other three players in the major label quadrangle of music distribution- EMD, BMG, and Sony- have yet to announce pricing responses of their own, it seems certain that these distributors will find themselves forced to compete by lowering their prices as well. So, yippee! Let’s all praise Universal for their generous and unselfish act of kindness, right?
Unfortunately, it’s not really that simple, friends. With their excellently waged media campaign, Universal Music Group certainly comes out looking almost heroic in this action. However, there is a lot that the mighty conglomerate isn’t mentioning to the public. While consumers and press are delighted by the move, retailers who carry Universal product are getting screwed big time.
Every chain and independent store’s price decrease is dependent on their signing of and compliance with a contract that the distributor has generated. Universal has outlined its markdown plan to music retailers- CD prices come down, more customers come in, and everybody’s happy- but the company has added some conditions that retailers must comply with to be eligible to participate in the program. Universal is using its industry dominance to muscle retailers into signing contracts that will force stores to suffer significant losses of profit and inventory control.
For starters, stores will not be allowed to return the product already in their inventories. So, when the price decrease goes into effect, every store will take a $6 hit on each Universal disc in their bins. Generally, a retailer’s cost for an $18.99 disc is roughly $12, so when the stock on hand is reduced to $12.98, stores will be making less than $1 per disc until they sell through their stock and have to reorder titles.
Retailers have not been offered any means of credit or compensation for this massive revenue loss. Is this how music stores are being rewarded for helping Universal ascend to dominance?
So, that’s only at the beginning, and once stores get through that, profit will return to normal, right? You’d think so, but another condition of Universal’s new deal would prove you wrong. While the retail price of CDs is dropping $6, the cost for stores is not being lowered accordingly. At the new price, retailers are earning roughly 20 percent less profit on each disc they sell.
Despite the fact that they will be charging retailers more than $9 for a product that costs them less than 10 cents to manufacture, Universal is anticipating revenue loss of their own, so they are finding other ways to increase the profit of their releases. One such offset is a stipulation in the new contract specifying that Universal will no longer engage in cooperative advertising with music stores. For instance, the costs of window displays and media advertising that had once been shared by the distributor and the stores they supply will now be the responsibility of the retailer alone. Not content with simply making financially trying demands, Universal has added a few more gems in their contract that will ensure their increased stranglehold on the marketplace.
Any store privy to the new prices must now alter the stock they carry so that at least 25 percent of the product in their store comes from Universal. The basic hypocrisy in this is that if 25 percent of a store’s sales came from Universal product, there would be no need for this demand. Retailers will be forced to order titles that they would not normally carry to fill this quota, and discontinue other titles to make room for these additions.
Universal is also demanding that 30 percent of each store’s listening stations be reserved for Universal releases.
Universal has not made it clear how they will be enforcing these new policies- they’re saving that information for later. But, conceivably, Universal would be policing record stores, and could demand inventory reports and sales figures from everyone to whom they distribute.
By the way, once the contract is signed, Universal reserves to right to change these terms any time they wish. So, if they later decide that stores should fill 50 percent of their inventory with Universal titles, retailers who do not comply will lose their access to the new pricing.
Now, here’s the hard part- convincing you why you should care about all this.
For one, because many retailers, especially independents, will be hit hard by this financial strain. It is a sad reality that many stores will close as a result of this tyrannical policy. If you don’t care because you buy all your CDs at Best Buy, you really need to turn off the radio and seek out some music with a little more substance.
Another downside for consumers is selection. With such low profit margins, it will simply not be worth it for stores to carry a substantial library of back catalog titles. You’ll still be able to buy Elton John’s “Greatest Hits”, but if you want to snag a copy of “Caribou,” you’ll be SOL. Plus, with a large quantity of titles being displaced to make room for the 25 percent Universal quota, some of your favorite bands are likely to get booted from the bins.
Then there is the discovery factor. If you’re curious how the new Folk Implosion record sounds, you won’t be able to find out, because stores won’t be able to display it for you to listen to. Since 30 percent of those spaces will have to be granted to whatever slothy new metal clone Universal is pushing, you won’t have the opportunity to discover records that you won’t be pawning off in six months.
If Universal wants to drop their prices, there is indeed a visible benefit in this. But, retailers should not pay the difference. Universal and their cronies need to wake up and realize that people aren’t buying less of their product because it is too expensive, but because their product isn’t any good. You can offer a bag of pig-vomit at discounted price, but it’s still a bag of pig-vomit.
Taylor Kingsbury, a senior journalism major, is a columnist for the Campus Times. He can be reached by e-mail at happyendingrocks@hotmail.com.
