How is Universal Music Group, the world’s largest record label, dealing with the reality that its overall revenues dropped 6.2 percent even though its digital sales rose 8.4 percent? It’s going to try to breath some new life into an old product, the compact disc.
UMG is shifting its philosophy on CDs, opting for more unit sales versus trying to make the most money possible per sale, unveiling a new pricing structure called “Velocity” that puts standard CD prices at $10 or less, according to a report from Billboard. The move makes CDs a more viable alternative to outlets such as Apple’s iTunes Music Store and Amazon’s MP3 store.
“We think it will really bring new life into the physical format,” Universal Music Group Distribution President and CEO Jim Urie said in the Billboard report.
According to Billboard, reaction from the industry has been less than enthusiastic.
“Why does Universal feel the need to get below $10?” a senior distribution executive at a competing major asked, according to the report.
The pricing structure will yield a 25 percent profit margin, meaning that a $10 CD will carry a wholesale price of $7.50. This is not UMG’s first large-scale price program. In 2003, the company rolled out its “JumpStart” program that reduced the price of CDs to around $12.98 from as high as $18.98.
The next step to observe with the program will be how retailers embrace the new pricing structure. Trans World tried an experiment in 2009 at f.y.e. stores where all CDs except double albums were dropped to the $9.99 price point. According to Billboard, that program resulted in a 100 percent increase in CD sales.
Wal-Mart has also been clamoring for $10 CDs for some time, but has wanted the label to lower prices so that Wal-Mart does not lose as much money on CD sales.
It should also be noted that the new price structure is limited to what one might call “basic” CDs and that the company plans to ramp up more special editions and collector editions that will carry a premium.