DMEC

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.

Cross posted on Miguel’s Blog

>play Music panel will discuss the current state of digital music and the emerging path as the business models change. Is free the new business model? Giving things away for free isn’t new, people have been giving away software, books, ideas, knowledge, art all for free. There is a great study on the economics of open source by Professor Eric Von Hippel of MIT. The argument applies to any creative work that previously had a price but is now given away.  In a recent article Michael Arrington of Techcrunch says, albums and singles will cease to be the source of revenue and will become marketing tools for other services (like concerts).

I will be very much interested in asking one of the panelists, RealNetworks , who have a subscription model, how the “free music movement” will transform their business model. Will Rhapsody/RealNetworks and others such services will become marketing channels rather than remain as digital music stores?

Join us at >play on October 27th to ask your questions.

Technorati Tags: >play, play conference, haas, berkeley, digital music, drm, rhapsody, realnetworks, music subscription

I caught the second half of this month’s BayCHI program and saw the presentation by John Buckman (of Magnatune and BookMooch). John led an entertaining interaction reviewing the evolution of applications he’s designed and built.

I was previously aware of the interesting approach MagnaTune takes toward selling music, but I left very excited about BookMooch, a service for trading in books you don’t want anymore, in return for credit that can be used to get books you do want. I have a ton of books stacked up that aren’t worth my time to sell. I’ve long-intended to give them away to friends, but that’s time-consuming as well. Trading them in for books I haven’t read seems even better. Has anyone else tried BookMooch?

Services like BookMooch, LaLa’s CD-trading service, and Netflix (essentially the world’s largest DVD library) take advantage of inefficiencies in other markets, impact demand for both physical goods like books and CDs and digital goods like e-books and mp3s, and provide customers alternatives to limitations on their media experience effected by DRM.

I wish I could figure out some sensible way to work John into the >play conference, as I thought his presentation style was fun and engaging (I’m guessing the audience members who kept interrupting him agree). Maybe we could talk him into scheduling a visit with us in Berkeley during the school year (please let me know if you would enjoy talking with him).

P.S. The anal-retentive side of me loves how he thinks about all sorts of little things, like using http://bookmooch.com by default instead of http://www.bookmooch.com. It’s never been clear to me why so many sites include the “www.”

Bluegrass musician (and one of my favorite virtuosos ever) Dave Grisman recently sued Warner and Universal Music--as well as their online partners (Apple, Yahoo, etc.)–for distributing Grisman’s music online without his consent. Grisman set up his own label years ago, called Dawg Music, and that entity holds the copyrights to his recorded songs. According to the lawsuit, Warner and Universal do not have the right to distribute those songs online and have been with holding royalty payments from online sales to Grisman. The online partners are guilty by association, and, according to the law suit, are also on the hook for reparations.

My favorite part to all this? The labels are being sued for piracy! Who woulda’ thunk it!

Interesting blog on Digg’s retraction of its taking down a post on how to unlock copy-protected DVDs. Perfect example of how digg needs to listen to its core audience: the techophiles that made the site what it is today. Also shows you why youtube did so well in the first place– by not pandering to copyright protection.

http://thelede.blogs.nytimes.com/2007/05/02/the-day-the-digg-users-revolted/