Is Apple Setting CD Prices?

Shins_2Last week, we noted that the Top 5 Amazon Music Sellers Are Under $10. (You can see their Bestsellers here and the sale junk here).

Now, we’ve long lamented the recording industry’s stubborn refusal to be more price competitive with other forms of entertainment has hurt sales. The unit sales of discs have suffered from competition with DVDs, satellite radio, multiplayer games, blogging, and the internet in general.

A friend in the industry agrees that price has become key. He has an important position in the biz, and he anonymously explains what has been motivating these price cuts: Apple iTunes. The 99 cent song and the $10 album is the prime driver of the physical CD price cuts.

Read on:

The biggest thing driving
prices to $9.99 is iTunes. Physical retailers are pressuring the labels downward
on price (of course, Wal-Mart is the biggest culprit) because they don’t want to
be undercut by iTunes 9.99 on all single albums.  We’re rapidly moving to a 9.99
world on the big sellers (the ones stocked in Target and Wal-Mart and Best

To accomplish this, I am
told, particularly on new releases, the labels are doing what they historically
did in the physical world and buying into "retail" programs — in essence,
paying for price and positioning or other marketing tools on Amazon by giving them functional breaks.  And you’ll note that 3 of the four examples you cite
are EMI releases (CBR, Norah, Beatles). 

EMI is in such bad shape, they are
doing whatever they can to move stuff.  And with Corrine’s appearance on Oprah
and with Norah out this week, they are pulling out all the stops to make these
records big stories (CBR went from 26 to I think 4 on the chart, mostly as a
result of Oprah).  The hope is that they can then go back up to normal price
later with a "must-have" product.

The Shins record is on
Sub-Pop so they likely have a lower suggested retail price anyway to begin with
(probably $13.98) so it’s not really that big a discount for an indie (likely
only 10% off normal wholesale to get it down).

Now Regina Spektor is a
more interesting case.  She’s basically an unknown artist and they’re trying to
get some traction by giving the record away (and they’re doing this more and
more on new/unknown artists). 

So yes, there is pricing pressure, caused mostly by the success of iTunes and the falling physical sales
market.  Without iTunes, the downward pressure would be substantially less.

I find it fascinating that all of the other economic competition to CDs we have mentioned — DVDs, multiplayer games, internet, etc. have been unable to force the industry to lower prices, and so they have lost unit sales.  But iTunes, in the industry’s own space, couldn’t be ignored.

Great stuff, G. Thanks for the insight.

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  1. wnsrfr commented on Jan 30

    And you get a full, un-lossy copy of the track, compared to those crap rips from i-tunes…

    Better to get the nice plastic with the mini-cover, then rip yourself to an easily copied, higher kbs mp3. Sure, still lossy, but better than iTunes. And you can copy it without a straitjacket on.

  2. DavidB commented on Jan 31

    9.99 is still a rip if you ask me.

    Personally I believe the future model should be the artist selling their CD’s for a couple dollars or less (which should still make them millions in a world full of billions of people) and then making their money on tour. I still don’t understand why someone should work six months or so in a studio once and get paid for the next twenty years on it.

    No one pays me for working once 12 years ago at my job. Once my work is done for the day my boss says come back and do the same tomorrow if you want more money. Why should the music industry be any different? Copyright has spoiled them and actually works to stifle creativity. They are supposed to be entertainers but once they get that one big hit the creative tap is turned off because they don’t need to work any more and we all suffer for it.

    When was the last time queen Shania did anything for her cash? They sure have us duped!

    Reading this post it might come off sounding bitter but that is not the intent. It’s more annoyance and that is at the greed in the music industry. I listen to dead composers myself. I can’t even stand the majority of the new stuff. Unless it’s been around for a hundred years or so I’m probably not interested. OK I think the rant is complete now

  3. Barry Ritholtz commented on Jan 31

    It depends upon what you produce — if you build a house, you can sell it once — or you can rent it out forever.

    Any creation — music books, inventions — generates a royalty for a long time. 18 yeras for Patents, and, thanks to Disney and the like, about 100 years for copyright (well beyond the original life of a copyright)

    The details: “The length of the copyright term within the United States was extended by the Sonny Bono Copyright Term Extension Act, which made the copyright term the life of the author plus 70 years for works created after January 1, 1978. In the case of a work of corporate authorship (also known as “Work for Hire”) the term will be 95 years from the date of first publication or 120 years from the date of creation, whichever expires first. This legislation was challenged in court and affirmed by the US Supreme Court in the landmark copyright decision, Eldred v. Ashcroft (2003), in which the Supreme Court agreed that the length of the copyright term (ie, the period of time during which the copyright holder has a monopoly on its exploitation) could be extended by Congress after the original act of creation and beginning of the copyright term, as long as the extension itself was limited instead of perpetual. The duration of U.S. copyright for works created before 1978 is a complex matter; however, works published before 1923 are all in the public domain. In the US, after the death of a copyright holder, heirs inherit the copyright.”

  4. VoiceFromTheWilderness commented on Jan 31

    $.99 for a downloaded song is just as much if not more than a rip-off as a 15 dollar CD with 14 songs on it, a cover, a case, physical presence (harder to lose). They have no distribution costs, almost no marketing costs, no sales costs, no production costs. .99/ song shouldn’t be tolerated by consumers either.

  5. DavidB commented on Jan 31

    It depends upon what you produce — if you build a house, you can sell it once — or you can rent it out forever.

    Yes, but even still you need to maintain the property. Once an artist’s ‘work’ is completed they don’t have to do anything. That is like paying a painter a commission every time his painting is sold. If painters demanded that people would laugh in their faces

    Any creation — music books, inventions — generates a royalty for a long time. 18 yeras for Patents, and, thanks to Disney and the like, about 100 years for copyright (well beyond the original life of a copyright)

    Yes, I understand that and the reasons behind it. If there wasn’t copyright protection it would stifle creativity because there would be no benefit in it for anyone.

    That makes sense in the case of television and movies where it is very hard to reproduce the product once it is made. The same goes with books

    That usually is the case in the area of invetions as well though the inventor sometimes has to sell the invention himself unless a company is paying him to invent. That goes right back to the come back tomorrow to earn some more money scenario.

    I think music is a completely different animal though. Their product is easy to duplicate so they have a means to generate an income from it besides the record they made ten years ago

    This is just my opinion of the way I think the industry should be. I doubt it will come to that, though it might. I just believe these artists are way overpaid for the amount of work they do but as long as the public is willing to pay top dollars then it will continue but as it stands they are stifling creativity by paying the performer so much that they don’t have the incentive to continue. I guess that is how you can tell if someone truly loves what they are doing. They won’t stop with money they’ll keep on producing because they love what they do.

    Me, I’d rather purchase Mozart CDs for 2 bucks because his popularity has passed. At least I’m getting value for the dollar there

  6. David Harrell commented on Jan 31

    Great post, Barry. I’ve been tracking the prices for the top 25 albums at iTunes (and comparing them to for the past few weeks for research piece I’m working on.

    A few quick stats: On Friday, 1/19, 10 out of the top 25 albums at iTunes were available for the same price at ($9.99). And another three ablums were actually cheaper at Amazon, though the iTunes versions for two of them included bonus tracks or videos.

    Of course, that’s ignoring shipping charges for the purchases. But a large number of Amazon customers either qualify for free shipping via a $25+ purchase or have signed up for Amazon prime…

  7. Steven Walcott commented on Jan 31

    Just a small bit of mathematics:

    If you take the 2.5 billion songs downloaded at iTunes (I’m spotting them a couple hundred million tunes) and you divide that by the 88 million iPods sold you will get an average of 28.5 songs paid for on each iPod. That’s not an impressive number when a lot of these iPods have tremendous capacity. People are buying iPods to play the music they already own or get music from swapping (over the net or otherwise).

    The iPod is a great product for Apple, but it’s not doing much for the music business. If Apple is driving cd prices, that says more about the lack of imagination within the music business than it does about Apple’s success in selling music.

  8. John commented on Jan 31

    Re: Steven Walcott’s analysis that 28 songs per iPod is not alot – I think you are looking at the statistics backwards. True less than 100 songs per iPod is not a significant number per person, but put together – the 2.5 billion number you use – is a lot of cash – $2.5 billion which is an incredibly large amount of money – larger than the gross domestic product of about 40 3rd world countries (according to World Bank statistics for 2006).

    The real problem with the music companies is their stubbornness. They want to keep profi margins continuous. If they sell less product, they decide to jack up the price (sell less units but profits remain the same). This is the reverse of standard economic logic of supply and demand. If people are demanding less product, lower your price and you will sell more. I for one became hesitant about buying new CDs after they passed the $15 per disc range. Suddenly I had to make serious choices about what music I bought. I would have bought many more CDs and heard more artists if the price were down near $10 per disc.

    All that being said, I believe fair pricing would be songs for $.25 and full albums for $5 (on iTunes) and physical discs for $7. Imagine how many more artists you would experiment with just because things are cheaper.

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