CDs for 10 bucks. What!?

UMG: The largest record label in the world
Maybe you all heard that Universal Music Group will be dropping all of their CD prices to $6 to $10 shortly as a “pricing experiment” for the US. What are this guys doing? Is it enough with the suffering this dying format is getting?
“We think it will really bring new life into the physical format,” Universal Music Group Distribution president/CEO Jim Urie told Billboard.
Numbers: CD sales are down 15.4% this year, 18.2% last year, and 19.7% in 2008, when CD sold were 360 million, as opposed to the 706 million units sold in 2000, the historic peak.
UMG been busy the last couple of years. With their digital sales rising 8.4% for 2009 and with the launch of their online video music

Will this image exist in the future?
site VEVO it seems that the biggest record label is betting big time on digital. Then why dropping CD prices? Maybe they just want to kill the format as fast as they can and continue toward digital? My first guess is no. There are a few facts that we need to consider in order to come up with the reasons why they are doing this.
First: though everyone refers to CD as a dying format, I believe that is not. It’s been declining but I would say that besides that the new generations prefer the portability and immediateness of MP3s, there are advantages that the CD has and that over a long period of time digital files won;t be able to replace: sound quality, freedom of ripping at whatever quality I want, cover art, etc. If you truly love an artist you prefer to have their CD and then rip it to your portable devices. That’s the only explanation of why I having the complete Beatles collection in MP3 still bought the CD collection of mastered recordings. I just loved them too much. I need something more than bytes. The recommendation comes from too close but I would say that I’m not the only one with that strange behavior. Why vinyl haven’t died yet and even saw in increment in sales last year? Mystique and fanaticism, pure and simple.
Second: price itself it’s been a cause of CD’s declining tendency. We all think that CDs are too expensive compared to the digital version of albums. Despite all the advantages that we discussed before, the price difference it’s too much. If I can get the music (which is the most important thing by the way) for half the price I don;t care about some extra quality and artwork.
Third: UMG plans are not only to lower prices (Rashi would kill me!). They still plan to sell CDs for $20, but premium CDs or deluxe editions for fans like the ones I described before). Also they currently make 25% profit per CD on average and they stated that they plan to keep that figure. That means that all the usual costs of promoting and marketing artists will go down or shift channels to less expensive ones to maintain that profitability.
Final result that UMG is looking for: Maintain their profitability but increasing the quantity of CDs sold. It’s an experiment by the way, remember? What they are trying to test. I would say the possibility of having a longer life for CDs as a profitable product and using different formats for one products to capture the value from a broad universe of customers. New generations and cost sensistive buyers will choose cheaper digital files, the CD lover will buy the new 10 bucks CD and fanatics will buy deluxe editions if they want too. A much more better picture for what they were expecting when MP3s appeared years ago.

What will retailers think?
Not everyone believes this is going to work, especially CD retailers. It will depend a lot on what other labels will do. Follow? Stay? UMG is the bigger player in the music industry worldwide. I can assure one thing: others labels are nervous about what UMG is doing but as annoyed as they can be, they will have to choose what to do and it won’t be easy.
For the sake of music, let’s hope this idea works.
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