North American record giant Universal Music is slashing prices on its compact discs in a desperate bid to get music fans back into stores and away from downloading music for free on their home computers.
Universal said yesterday it will chop prices starting in October, so that CDs that currently carry a suggested retail price in Canada of $19.98, $20.98 and $21.98 will sell for no more than $14.98.
Will consumers take the bait?
Don't be too sure, said Josh Bernoff, an analyst at Forrester Research Inc. in Boston. "I think you'll see unit sales go up as prices go down, but this will not change the slide away from CDs towards downloading."
Jason Goorwah, a 17-year-old student in Toronto, agrees. "I've stopped buying a lot of CDs," he said, adding that he prefers to download music onto his MP3 player.
Mr. Goorwah said cheaper prices might persuade him to buy a few extra CDs, but a $5 saving isn't enough to lure him into record stores more often.
He said he doesn't think most CDs are a good deal. "I don't listen to all the tracks."
Universal Music Canada, which commands about one-third of the $1-billion retail music market in this country, distributes the music of many big-time artists including Eminem, 50 Cent, Diana Krall, Ashanti, blink 182, Sam Roberts, Sheryl Crow, U2 and Shania Twain.
The new pricing policy will affect Universal's new releases, its top hits and the company's back catalogue.
The price drop is a response to widespread complaints from music lovers, especially young people, about high CD prices. Many have turned instead to electronic file-sharing to build up their music collections.
Music sales have dropped 20 per cent in Canada in the past three years, a loss of about $250-million to the industry.
Universal's repricing strategy "is a crucially important move to try to win music customers back," said Mr. Bernoff.
His company's surveys of music fans have revealed bitter complaints about the price of CDs.
Other record labels will likely follow Universal's lead, Mr. Bernoff said, because they are all scrambling for a way to recoup what they are losing to free downloading. Mr. Bernoff said one can not overestimate "the level of desperation in music companies right now."
Music labels are willing to try all sorts of unpopular things, like prosecuting file-sharers, to stem the tide, he said, and "a price cut is another way to get people to come back to the fold."
Universal Music Canada president Randy Lennox acknowledged that record companies must change their approach. "The industry needs to rethink its business model, and we at Universal are trying to lead that particular charge," he said.
He predicted that the price cut could boost CD sales by as much as 30 per cent.
Mr. Lennox wouldn't say how much the change will cost his company, but the hope is that increased volume will outweigh the decreased margins.
In Canada, the industry has been running an advertising and education campaign to persuade users that file-sharing is illegal and damaging to the music business.
Record companies are also supporting new pay-for-play systems that allow people to download high-quality music files for a price. Apple's iTunes Music Store has been a big success in the United States since its launch in the spring, and a Canadian system called Puretracks, from Toronto firm Moontaxi Media Inc., is set to launch this fall.
In the United States, where prices will fall from an average of about $19 (U.S.) to about $13, the music industry is wielding a heavier club, threatening to sue those who illegally share files.
Another approach is to build more copy-protection technology into CDs, which makes it more difficult to share tracks. Mr. Lennox said that all of his company's CDs featuring Canadian artists will soon have copy-protection technology built in.
But it is the price decrease that Universal hopes will win the "hearts and minds" of music consumers, he said.
He said he has been in intense talks with record retailers to make sure the price reductions can be introduced smoothly. "We are definitely taking a haircut, [but]we feel we have left enough wiggle room, margin-wise, for retailers to run a profitable business."
Jason Sniderman, president of Toronto-based record retailer Sam the Record Man, said yesterday that he had not talked with Universal yet, but he was enthusiastic about a price cut.
"Hopefully it will spur interest in music," Mr. Sniderman said. "I think it will reflect well on record sales. I hope other companies follow suit."
Record companies have been raising prices for the past 20 years, he said, so it "will be a labour of love" to reduce them in his stores.