Walmart wants $5 CDs

[ZERO HEROES]

They've wanted price drops for a few years now....

 

 

NEW YORK (Billboard) - The major music companies have been resistant to lowering their price on CDs, but now they may be dragged to that point: Wal-Mart, the largest retailer of music with an estimated 22 percent market share, has proposed a five-tiered pricing scheme that would allow the discounter to sell albums at even lower prices and require the labels to bear more of the costs.

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According to sources, the Wal-Mart proposal would allow for a promotional program that could comprise the top 15 to 20 hottest titles, each at $10. The rest of the pricing structure, according to several music executives who spoke with Billboard, would have hits and current titles retailing for $12, top catalog at $9, midline catalog at $7 and budget product at $5. The move would also shift the store's pricing from its $9.88 and $13.88 model to rounder sales prices.

 

Executives at the Bentonville, Arkansas-based discounting giant wouldn't comment on the specifics of their promotion, but Wal-Mart divisional merchandise manager for home entertainment Jeff Maas acknowledged the proposal. "When you look at sales declines with physical product, and you have a category declining like it is, you have to make decisions about what the future looks like," he said. "If you have a business that is declining and you want to turn it around, it really takes looking at it from all angles."

 

Maas referenced the DVD business as a model for tiered pricing. "(It) has been around for years and has worked very well," he said.

 

While Wal-Mart's negotiations with the labels have yet to take place, the proposal is already causing agita at the majors. Some consider the proposal a non-starter, others say further negotiations might eventually yield a workable solution, and a few see it as appropriate, given the big picture.

 

"I don't think this is a Wal-Mart discussion," one top executive at a major label said. "I think this is a future-of-the-business discussion. Right now everyone is paralyzed."

 

Some executives raised the question of whether the Federal Trade Commission would take issue with such a program were it rolled out only to Wal-Mart. But one executive said, "Making it legal is not the difficult part. The difficult part is coming to terms with it."

 

Another top executive said, "The decision might come down to: Do we give up 20 percent of our business (i.e., Wal-Mart) in order to not lose the entire business?"

 

That question assumes that Wal-Mart would either penalize or stop doing business with a major that decides not to participate in the pricing program. Moreover, if all majors take a pass, some speculate that Wal-Mart could pull music entirely from the store.

 

This type of speculation abounds, although the Wal-Mart proposal was presented only as a starting point. One label executive said, "This sounds like the Hail Mary pass, and if it doesn't work, they could be out of the music business; or maybe they reduce music down to a couple of racks" from the 4,000 titles carried by Wal-Marts with larger selections.

 

Maas declined to rule out those possibilities, but said he'd rather look at how Wal-Mart can help a declining category. "The customer votes every single day in our stores, and based on what they want is how we merchandise our stores."

[ihateyouguys]

It's just another step towards the death of the CD.

 

I've come to believe physical distribution will basically be niche market in about 10 years. Everything will be available for download anywhere at any time. You'll be able to pay extra for higher bit rates /quality. CD sales (or whatever the physical media will be) will likely be something done via mail order from central clearing houses - for smaller things like CD baby and maybe amazon, with their efficient distribution system, will still handle them. But why press hundreds of thousands of CD's, put them in the channel,and then send them to stores where they may or may not sell?

 

BTW, I think the same will hold true, albeit in a smaller way, for DVD sales. Storage costs and bandwidth costs will keep going down while costs to transport and manufacture physical products will likely keep rising. Consumers will grow tired of upgrading physical standards (dvd to HD dvd with competing formats they can bet on and lose) - why worry about that when you can buy the same thing digitally without leaving your house and get it in under 30 minutes?

[RyanVanHalen]

IMO getting walmart out of music distribution is the best idea i can think of. send the power back to the local cd shops

 

many people still like the feeling of going into a homegrown cd store, knowing the staff, seeing theirmusic picks, new releases, and limited edition cds.

 

just a thought. i personally would rather go to a local store thsn amazon for a physical cd

[sabriel9v]

 

IMO getting walmart out of music distribution is the best idea i can think of. send the power back to the local cd shops

 

 

I disagree. I think it's more efficient for labels to send the majority of their catalogs and stock to a place like Wal-Mart as opposed to 1,000 different retail stores. Plus I'm in favor of the tiered system.

 

If the cd is genuinely going to die, let it go. I'll sell my music on little USB drives and memory cards...anything to get the material out there. To me, the value of physical container is diminishing. It's all about accessing the goods inside whichever way possible.

[richardmac]

Here's my question - like many folks, I write and record my own music and make my own CD's. I've done the homemade CD route and I've also had them made by discmasters. How will this move, if it happens, affect the amount of money I charge for a CD? Will there come a time when artists like me have to reduce our prices? Has that already happened?

[sabriel9v]

 

Here's my question - like many folks, I write and record my own music and make my own CD's. I've done the homemade CD route and I've also had them made by discmasters. How will this move, if it happens, affect the amount of money I charge for a CD? Will there come a time when artists like me have to reduce our prices? Has that already happened?

 

 

Good question. I think the price of your cd is based upon a couple factors.

1) What can your fanbase afford to pay? 2) What is the price of the competitor's product? If Wal-Mart is charging $5-10 for cds, it might be not be very smart for you to charge $15 for your indie release. Then again, if your fans don't mind paying that price, why not?

[CLOCK13]

 

Here's my question - like many folks, I write and record my own music and make my own CD's. I've done the homemade CD route and I've also had them made by discmasters. How will this move, if it happens, affect the amount of money I charge for a CD? Will there come a time when artists like me have to reduce our prices? Has that already happened?

 

 

 

A price drop for music discs is well overdue. How much do you charge for your albums as of now? If Wal Mart is going to sell their hits for $10 a piece maybe you should sell yours at that price or a little lower?

[Deeprig9]

THis walmart flip-flap is macro, we indie musicians are micro. The overall law of economics is that the price is what people pay for it. People who shop at Walmart to buy CD's isn't the indie market. Let's not make the mistake that Toby Keith's new album selling for $10 in a Missouri Wal-Mart means you can't charge $15 for your CD on your website or at your shows, or through CDbaby or Tunecore or Amazon.

[CLOCK13]

Deeprig9: I would not pay $15 for an indie if they are going to be sold for $10 everywhere else. I would buy from the indie artist that charges $10.

[Deeprig9]

 

Deeprig9: I would not pay $15 for an indie if they are going to be sold for $10 everywhere else. I would buy from the indie artist that charges $10.

 

 

 

Then you are only a step above the illegal download crowd, who thinks that the world owes them something.

[Deeprig9]

Furthermore, if you want my CD for $10, and I won't give it to you for less than $15, you'll just go download it for free. And that makes you a criminal that deserves to be prosecuted to the fullest extent of the law, for stealing my property. What do you think about that?

[CLOCK13]

You sound like you hate cdbaby artists who choose to sell their albums for $10 and less.

[The*Ataris]

This article is so stupid. The labels aren't what's keeping CD prices so high (even as they're dying); it's the distributors.

 

The distributors are scared {censored}less at the idea of no physical product existing in five years and they're milking profits while they can. They want to make as much as they possibly can from each little plastic disc and they don't care if it's a current #1 hit or yesterday's news.

[Deeprig9]

 

You sound like you hate cdbaby artists who choose to sell their albums for $10 and less.

 

 

I'm a tunecore artist, which means I do the "cdbaby" thing without 9% commission. I have no problem selling an album for $10 when I make $7 off each one. We are on the same team. I'm just tossing in a little perspective, that's all.

[sabriel9v]

 

THis walmart flip-flap is macro, we indie musicians are micro. The overall law of economics is that the price is what people pay for it. People who shop at Walmart to buy CD's isn't the indie market. Let's not make the mistake that Toby Keith's new album selling for $10 in a Missouri Wal-Mart means you can't charge $15 for your CD on your website or at your shows, or through CDbaby or Tunecore or Amazon.

 

 

Hmmm, I'm not sure if I can agree with that. What about the music fan out there who figures that they can get Superstar A or Superstar B's album for $10 at Wal-Mart and therefore should pay the same if not less for an independent release. The indie artist is not as big as the superstar after all, so what provides an incentive to pay an extra 50%?

[Deeprig9]

 

Hmmm, I'm not sure if I can agree with that. What about the music fan out there who figures that they can get Superstar A or Superstar B's album for $10 at Wal-Mart and therefore should pay the same if not less for an independent release. The indie artist is not as big as the superstar after all, so what provides an incentive to pay an extra 50%?

 

 

That's like saying you can't charge $7 for a burger and fries because McDonalds has both on the dollar menu.

[crossways]

I wanna go down this road for a moment, and please point out where my thinking is flawed...I'm sure I haven't thought of something BUT:

 

For arguments sake let's say wal-mart sticks to their gus and hold to the teired system, and that the majors sake NO THANKS and refuse to let wa-mart sell their product.

 

Could this be a gold mine for the independent artist? We already know that walmart has a lot of variation in stores from region to region...particularly what they carry (brands, etc.). What if wal-mart said...let's keep music, but use independents. Maybe they use myspace to see what bands are doing well regionally.

 

So Band X from Florida does fairly well. They are playing a decent number of shows, getting a ton of plays on their myspace, and their home-produced cd doesn't suck. They can produce a cd for $1 (not counting production costs, becuase it was DIY). Walmart will buy enough to supply their Florida stores ...10,000 units. They will buy them for $1.50. Band X just made $5000. Now if Band X does well, maybe walmart decides that next time they will supply three states or more.

 

Also their would be the potential that bands supply only the digital form of the music to walmart that can then turn around and do the duplication much cheaper, perhaps giving the bands a slightly higher cut?

 

I'll grant you that this isn't perfect, and likely not plausible...but how many bands have made $5000 off of their cd?

[MartinC]

 

I wanna go down this road for a moment, and please point out where my thinking is flawed...I'm sure I haven't thought of something BUT: For arguments sake let's say wal-mart sticks to their gus and hold to the teired system, and that the majors sake NO THANKS and refuse to let wa-mart sell their product. Could this be a gold mine for the independent artist? We already know that walmart has a lot of variation in stores from region to region...particularly what they carry (brands, etc.). What if wal-mart said...let's keep music, but use independents. Maybe they use myspace to see what bands are doing well regionally. So Band X from Florida does fairly well. They are playing a decent number of shows, getting a ton of plays on their myspace, and their home-produced cd doesn't suck. They can produce a cd for $1 (not counting production costs, becuase it was DIY). Walmart will buy enough to supply their Florida stores ...10,000 units. They will buy them for $1.50. Band X just made $5000. Now if Band X does well, maybe walmart decides that next time they will supply three states or more. Also their would be the potential that bands supply only the digital form of the music to walmart that can then turn around and do the duplication much cheaper, perhaps giving the bands a slightly higher cut? I'll grant you that this isn't perfect, and likely not plausible...but how many bands have made $5000 off of their cd?

 

 

How many bands have zero cost for recording, mixing, mastering, artwork? There goes the 5k plus. DIY or not, it cost money and more importantly, time, time, and more time to make a cd that competes with other quality cd's. Instead of looking at ways to gut the profit from recordings, I think musicians might be better served to create a product that can be marketed at a reasonable profit. Or at least figure a way to market their product for a real profit.

[Alan Roberts]

I can't think of any scenario involving Wal-Mart and the music industry that would be beneficial to the music industry.

[ihateyouguys]

 

Could this be a gold mine for the independent artist? We already know that walmart has a lot of variation in stores from region to region...particularly what they carry (brands, etc.). What if wal-mart said...let's keep music, but use independents. Maybe they use myspace to see what bands are doing well regionally. So Band X from Florida does fairly well. They are playing a decent number of shows, getting a ton of plays on their myspace, and their home-produced cd doesn't suck. They can produce a cd for $1 (not counting production costs, becuase it was DIY). Walmart will buy enough to supply their Florida stores ...10,000 units. They will buy them for $1.50. Band X just made $5000. Now if Band X does well, maybe walmart decides that next time they will supply three states or more.

 

 

The way walmart treats their suppliers makes that scenario unlikely.

 

My guess is that the tiered pricing will push most CD's down to the level where the sales per square foot becomes too low for them (they get about $400 per SF) on all but the top performing CD's. Their selection will shrink to all but the best sellers.

[sabriel9v]

 

That's like saying you can't charge $7 for a burger and fries because McDonalds has both on the dollar menu.

 

 

If the quality of your product is the same as McDonald's or of a lesser value, than people will go to McDonalds. That's precisely why people shop the dollar menu. If they feel they can get a product that's of equal or more value for less money, than it better suits them to go with the cheaper product. Sorry Deeprig, but that argument doesn't work too well here.

[sabriel9v]

The way walmart treats their suppliers makes that scenario unlikely. My guess is that the tiered pricing will push most CD's down to the level where the sales per square foot becomes too low for them (they get about $400 per SF) on all but the top performing CD's. Their selection will shrink to all but the best sellers.

 

Great point

[MartinC]

 

If the quality of your product is the same as McDonald's or of a lesser value, than people will go to McDonalds. That's precisely why people shop the dollar menu. If they feel they can get a product that's of equal or more value for less money, than it better suits them to go with the cheaper product. Sorry Deeprig, but that argument doesn't work too well here.

 

 

But how hard is it to make a better burger than McD's? Not very. Plenty of 10.00 dollar burgers being sold in SF.

 

A cd by an artist is a unique product. You can't substitute Clapton for Muddy Waters. You can choose to buy the Clapton cd becasue it's cheaper, but you don't get Muddy.

It's true that if you charge way more than the competition, they will choose to buy other product more often than not, but there will be that customer who identifies with an artist so much that they will pay his price, even if it's more. How much more is an open question. But just pricing your cd below Wal Mart will not make sales explode. People have to want it in the first place. Once they do, your in the driver's seat. You are the maker of a sole source product. Another aspect is marketing. If your cd is in Wal mart, then you might want to price it near the other cd's in wal mart, but if your selling at a gig, there's no way wal mart's price should have much to do with your price, IMO.

[sabriel9v]

 

But how hard is it to make a better burger than McD's? Not very. Plenty of 10.00 dollar burgers being sold in SF. A cd by an artist is a unique product. You can't substitute Clapton for Muddy Waters. You can choose to buy the Clapton cd becasue it's cheaper, but you don't get Muddy. It's true that if you charge way more than the competition, they will choose to buy other product more often than not, but there will be that customer who identifies with an artist so much that they will pay his price, even if it's more. How much more is an open question. But just pricing your cd below Wal Mart will not make sales explode. People have to want it in the first place. Once they do, your in the driver's seat. You are the maker of a sole source product. Another aspect is marketing. If your cd is in Wal mart, then you might want to price it near the other cd's in wal mart, but if your selling at a gig, there's no way wal mart's price should have much to do with your price, IMO.

 

 

That wasn't my point. The production and mixing put into Eric Clapton's latest album is going to surpass the production found on the album of an unknown blues guitarist. Some fans may feel that if Clapton's cd is $7-10 at Wal-Mart, has better production, good songs, and he's a superstar name, why pay $15 for Joe Blow and the Honky Tonk Boys based out of Hicksville, Alabama? Joe Blow may even be an amazing blues guitarist...but he's going to have to price his cd based upon what his fans can afford. And if Joe Blow is really smart he's going to look at his cd and marketing in terms of relative gains. This means how do his wins and losses relatively compare to other musicians in his genre.

[RyanVanHalen]

 

I wanna go down this road for a moment, and please point out where my thinking is flawed...I'm sure I haven't thought of something BUT: For arguments sake let's say wal-mart sticks to their gus and hold to the teired system, and that the majors sake NO THANKS and refuse to let wa-mart sell their product. Could this be a gold mine for the independent artist? We already know that walmart has a lot of variation in stores from region to region...particularly what they carry (brands, etc.). What if wal-mart said...let's keep music, but use independents. Maybe they use myspace to see what bands are doing well regionally. So Band X from Florida does fairly well. They are playing a decent number of shows, getting a ton of plays on their myspace, and their home-produced cd doesn't suck. They can produce a cd for $1 (not counting production costs, becuase it was DIY). Walmart will buy enough to supply their Florida stores ...10,000 units. They will buy them for $1.50. Band X just made $5000. Now if Band X does well, maybe walmart decides that next time they will supply three states or more. Also their would be the potential that bands supply only the digital form of the music to walmart that can then turn around and do the duplication much cheaper, perhaps giving the bands a slightly higher cut? I'll grant you that this isn't perfect, and likely not plausible...but how many bands have made $5000 off of their cd?

 

 

this is the most hilarious idea i've heard of. imagine at your next gig, a bunch of people in khaki pants and blue vests with thei walmart name tags showing up. they've got clipboards in hand, and theyre trying to calculate every aspect of your gig.

come on... thats at least SEMI amusing