CD cost goes down?

Wed Sep 3, 6:51 PM ET

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By Derek Caney

NEW YORK (Reuters) - Universal Music Group, the
world's largest record company, on Wednesday said it will cut list
prices on compact discs by as
much as 30 percent in an effort to boost sales that
have been stymied by free online music-sharing services such as Kazaa.

Starting in October, Universal, the home to such
artists as Mary J. Blige (news), U2 and Elton John (news), will trim its
prices on most of its CDs to $12.98
from its current $16.98-$18.98 range of prices.

"Our research shows that the sweet spot is to sell
our records below $12.98,' said Universal Music president Zach Horowitz.
"We're confident that when
we implement this we will get a dramatic and
sustained increase."

Historically, large retailers have sold new CDs at
considerably less than the so-called "manufacturer suggested retail
price."

"We expect this will invigorate the music market in
North America," said Doug Morris, the label's chief executive. "This
will allow retailers (to sell) for $10 or
less if they so choose."

The price cut comes as the company has endured the
enormous popularity of free music sharing services, which the labels
blame for music piracy.

Universal, which is owned by Vivendi Universal, sees
the price cuts as part of a larger strategy to discourage people from
downloading music from the
free services.

The record industry has already begun suing
individual users of these services for copyright infringement. The
labels have also begun offering their music
to online music services that charge for each song
downloaded, one of the most popular of which is Apple Computer Inc.'s
iTunes.

"As people will begin to migrate from illegitimate
services, they're going to be exploring a host of options -- some online
and some through retail," Horowitz
said. "We felt that the most important thing we can
do to encourage people to go back into stores is to reduce our prices
dramatically."

Wholesale prices for CDs would decline to $9.09 from
$12.02. For a handful of bigger name artists, wholesale prices would be
$10.10 for a short period of
time.

Universal also said it would stop "cooperative"
advertising, in which the label subsidized advertising by retailers in
local markets and instead advertise
directly to consumers. It will also withdraw other
discounts to retailers.

"(Our buyers) haven't had a chance to talk with
Universal at this point to get details on how it might affect the
business," said a spokesman from Circuit City
Stores Inc. . A spokeswoman from Best Buy Co. Inc.
declined to comment.

Amazon.com Inc., Tower Records and Trans World
Entertainment Corp. did not immediately return phone calls requesting
comment.

The other major labels -- AOL Time Warner Inc.'s
Warner Music, Bertelsmann AG (news - web sites)'s BMG, EMI Group Plc
(news - web sites) and Sony
Music Group -- declined to comment.

Some music executives questioned how much impact the
price cuts will have.

"This doesn't have as much impact as it looks," one
record executive said. "The labels were offering some discount programs
to the retailers that would
now end. So it's not entirely clear how much of a
change there is for retailers' margins."

Another executive noted that larger retailers like
Wal-Mart Stores Inc, Best Buy and Circuit City already sell CDs at
around $13 anyway to get people into
the stores to buy bigger ticket items.

"It remains to be seen what this means for the
specialized retailer of CDs," he said.

(Additional reporting by Jackie Sindrich)
-- -Kraig Grady
North American Embassy of Anaphoria Island
http://www.anaphoria.com
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