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| From | "W. Colter" <deedlemusic@sbcglobal.net> |
| Subject | Re: Universal cuts CD prices |
| Date | Thu, 4 Sep 2003 12:51:18 -0700 (PDT) |
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This editorial came from Moses Avalon's terrific newsletter www.MosesAvalon.com
MAJOR LABEL SLASH N' BURNS CD PRICES & CANCEL POPs
=================================================================
With an eye towards tilting Christmas sales figures, Universal Music is
planning on announcing this week that they are reducing the sticker
price
of CDs to about $10. And the price will likely go down from there,
depending on where you buy the CD. Naturally, the wholesale price
would
have to come down as well or retailers would simply go out of business.
But there's a good chance that retail stores will be adversely effected
anyway, as UNI is claiming that they are discontinuing the policy known
as
MAPS (see Moses Supposes - January 2003) and aborting the use of POPs:
(Point of Purchase advertising.) This would cut off music retailers at
the
knees and leave them starving for revenue at the most important time of
the
year.
To summarize MAPS and POPs for those new to the game: Whenever you see
big, life-sized cardboard cut-outs of your favorite pop-stars at the
front
of the record store, that likeness did not get there because the store
clerk thinks that artist is cool. The record labels pay big bucks for
that
placement. About $50,000 per chain. The cardboard cut outs are called
POPs (point of purchase materials).
It's been argued that record stores make more money renting floor space
for
POP displays than they do on the sales of CDs. The big question is, if
UNI's plan of slashing prices in hopes that buyers bypass the POPs and
bee-line for the cheap CDs succeeds, will the other four of the Big
Five
follow suit, drop prices and also discontinue POPs? If they do, we
could
see the brick and mortar "record store" as we know it, vanish,
literally
over night.
RESISTANCE IS FUTILE
Major retail chains will have the initial urge to ignore the new price
point and keep CD prices artificially high, to make up the revenue lost
from discontinued POPs sales. But this will likely be short lived, as
smaller Mom and Pop stores (who don't have POPs as a profit center)
will
certainly take advantage of the new vig, keep prices low and a price
war
will ensue.
Or, this Big Five could turn out to be the genius of retail, causing so
many units to move through stores that it restores faith in the
industry
AND creates huge profits for everyone. Any way you look at it, it's
going
to be an interesting season as the love/hate relationship labels have
with
brick-and-motor retailers enters a new (and potentially final) chapter.
ARTISTS ROYALTIES - GOOD NEWS, PERHAPS
There is another issue related to this that I will be keeping my eye
on. If full price for a CD is now $10, artists might find themselves
earning more money than ever from CD sales. How, you ask?
Virtually all major label contracts have royalty plateaus, whereby, if
the
record sells for full price (normally $17) the artist gets the full
royalty. (This is called a "top line sale" in most major label
contracts.) If it sells at below $12 the artist gets a three-quarter
royalty. (This is called a "mid-priced sale.") And if it is sold for
below
$10 they get a half royalty (called a "budget sale").
Whereas before the artist only got a half royalty on a CD that sold for
$10, because the price was more than 40% lower than the "top line"
price of
$17, now $10 would become the new "top line" rate and the artist could
get
a full royalty. Universal definitely has the "top
line/mid-price/budget"
structure in their contracts, and it represents the largest number of
artists in the US market place.
By way of an example, an artist who might have earned a $.90 royalty on
an
album sale would now earn about $1.20 on that same sale.
Call your lawyer or manager and ask him how the "top line records"
clause
reads in your contract. Ask him if this change of "top line" pricing
will
make an impact on your royalty statements. I think you'll see his eyes
light up a bit at the question.
I have little doubt that this label will try to assert that their
artists
should be paid the "budget rate" for these sales. But contractually the
artist may have some leverage here.
INDIES BEWARE
While artists signed to majors may get a windfall from this
development,
this move could have negative rippling effects for those selling their
CDs
off the side of the stage and through indie distributors. Y'see, the
perceived value of a CD is largely based on the retail value set by the
major chains. People will pay $12 for an Indie CD because it "feels"
like
a bargain, when they consider that CDs from major artists sell for $15
to
$17 in stores.
But if suddenly those same top 40 artists' CDs are only $10, my guess
is
that indies will have to lower their price to stay competitive. Will
their
distributors do the same, and lower their distribution fees to keep
pace? If not, indie artists will find themselves squeezed by this
price
compression.
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