Sunday, March 21

UMG Launches U.S Price Test

The Universal Music Group is ready to rewrite the U.S. music pricing system when it tests a new frontline pricing structure, designed to get single CDs in stores at $10, or below.

Beginning in the second quarter and continuing through most of the year, the company's Velocity program will test lower CD prices. Single CDs will have the suggested list prices of $10, $9, $8, $7 and $6.

To accommodate the lower pricing, UMG labels also plan to step up deluxe versions of albums that can sell at higher prices for the more devout music fans and collectors. UMG is also banking that the lower price points will at the least be offset by increasing CD sales volume.

Most new releases will carry the new price points, although there will be the occasional exception, UMG sources say. At deadline, it was unclear exactly when the program would begin, because Universal Music Group still hadn't relayed that information to accounts.

"We think [the new pricing program] will really bring new life into the physical format," Universal Music Group Distribution president/CEO Jim Urie said.

25% profit margin

Retailers should respond well to the new price points. But the level of their acceptance will likely depend on the profit margins that the new UMG wholesale prices afford. According to sources, the new pricing structure will carry a 25% profit margin, which means that $10 list CDs will wholesale for $7.50; $9 for $6.75, $8 for $6, and so on.

Consequently, retailers who buy from wholesalers will likely be less enthusiastic about the move.

Between all the retail circulars touting hit titles at $9.99, and iTunes selling albums at that same price point, it became conventional wisdom among merchants that $10 is the magic price point that will induce consumers to buy more CDs.

The new UMG pricing structure for CDs won’t impact its digital pricing; the company plans to keep its current pricing for digital.

This move is really inevitable if you look at the selling of CDs in the last 10 years. Things can not get better for the CD world until the price point is addressed. $10 CDs are a better sale than ever before. Let us see how this works.

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