Peter Kafka has a piece up on MediaMemo reporting that Universal Music Group is pushing a plan to sell CDs at a retail price of $10 or less. They have done some tests which show that such a move might dramatically increase sales:
In the last few months, Trans World Entertainment began testing the $9.99 price point in over 100 stores, while Wal-Mart has been telling the majors to release shorter albums at lower prices more frequently.
The Trans World test–in which most independents and every major except for the Warner Music Group participated–produced units sales increase of more than 100%, according to label executives who participated in the tests. The Trans World test helped sell the new pricing model to the Universal labels, sources say.
Yesterday I wrote about the challenge in judging market timing for big shifts like the one to music streaming services, and how in industries like music where industry insiders have an effective block on change there is only so much that startups can do to drive the timing of the shift. This news about Universal reinforces that point. I’m guessing that the execs at Universal will be much less willing to experiment with streaming services whilst they believe they can arrest the decline in recorded music sales by moving down the price-demand curve. Warner’s recent statements against ad supported models may have been motivated by similar thinking.
Further, I would expect that if they get agreement from the other labels and push ahead with this strategy it will meet with initial success. Sales would go up and the industry’s desire to embrace streaming would wane – but only for a while. Sooner or later sales would start declining again and at that point margins would be lower and the industry would have less to lose and hence less worried about the impact of new business models. But we would have lost some time, the startups in this space would have burned some more money, and maybe had to raise some more money, which would be bad news for their founders and investors.