Drastic Unilateral Action

"Today we are making a major announcement…We [will] significantly reduce our CD prices in the U.S. starting in the fourth quarter. On virtually all top-line CDs, we will lower the wholesale price from $12.02 to $9.09, with a manufacturer's suggested retail price of $12.98…"

And so, with this proclamation from Universal Music Chairman and CEO Doug Morris and COO Zach Horowitz, begins Operation JumpSTART. The pricing goes into effect on September 29, when Ludacris's CD Chicken & Beer becomes the first $12.98 CD to go on the market under the plan. Catalog stuff and other CDs will sell for even less, and Universal has implied that retailers could sell CDs they buy at $9.09 for $9.99 "if they so choose." (If they choose to go out of business, they mean, at least as far as mom-and-pop record stores are concerned.)

Universal will subsidize the plan in part by eliminating co-op advertising, a program by which the label gave stores money to advertise their products for them.

JumpSTART has stunned the entire music biz. "They are basically forever changing the record business today," one unnamed executive told The Wall Street Journal. "It's a massively bold move; it's the kind of move we as an industry need to be making."

Universal also unveiled that the carrot of cheaper CDs was not far from a stick -- they would also be hunting down file sharers with renewed vigor, and soon after the Universal announcement the Recording Industry Association of America announced a fresh brace of lawsuits against hundreds of file sharers. A 12-year-old girl and a Dallas-area grandfather with the wonderful name Durwood Pickle find themselves ensnared in the dragnet. (There's already a "Free Durwood Pickle!" T-shirt in the works -- can a new band by that name be far behind?)

The RIAA and Universal even brought a bogeyman out from under the bed. Music fans, they claim, have accidentally downloaded kiddie porn when all they wanted was a copy of "Right Thurr"! (Why someone would choose to disseminate kiddie porn through popular Web sites such as Kazaa, the very ones that are under intense scrutiny right now from the recording industry and legal authorities, was not addressed.)

Universal figures if it simultaneously attacks pirates and lowers prices, there will be an orgy of music spending this holiday season not seen since the pre-Internet salad days of Garth Brooks and Nirvana.

At least as far as the cheap CDs go, the press spin has usually been that this is a completely wonderful development. Finally, the price of CDs will come down across the board. Finally, a major company has shown some compassion for beleaguered consumers in these trying times. Finally, the greedy music industry gets the post-Internet world. Consumers and retailers should rejoice!

Well, yes and no. Mostly no. Some see it as something akin to when a baseball team dumps salary to make the franchise more attractive (and expensive) for potential buyers, and indeed, Universal Music is for sale. Others see it as a pre-Christmas publicity stunt -- nothing more than a temporary company-wide sale. After all, nobody has ever said that this is going to be permanent.

Others detect the hand of big retail, and the smart money's on them. Dave Ritz, long the owner of the now-defunct Infinite Records, and now the host of regular record conventions, doesn't see it as a particularly charitable move, especially as far as consumers and mom-and-pop record stores are concerned. "I was talking to a Universal employee who told me that this was not so much a benevolent act so much as they were forced into it by a coalition of major retailers who told them they didn't want to pay more than ten bucks for a CD and if Universal didn't sell at that price they would put something else in that space."

Further, it must be remembered that this is a participation program, not an across-the-board price cut. To qualify for the JumpSTART pricing, stores must agree in writing to a "promotional commitment" requiring them to devote a minimum of 33 percent of end caps, windows and listening booths and 25 percent of their bins to Universal records.

While chains such as Target and Wal-Mart would have no problem meeting those terms, they seem designed to ensure that many, if not most, smaller record stores won't. Take Cactus or Soundwaves, and then take a look at Universal's catalog.

Current artists on Universal labels include Ashanti, Mary J. Blige, blink-182, Mariah Carey, Sheryl Crow, Dr. Dre, Eminem, 50 Cent, Enrique Iglesias, India.Arie, Elton John, Diana Krall, Nelly, No Doubt, t.A.T.u., Shania Twain and U2.

Then there's Universal's old stuff, which includes ABBA, James Brown, Eric Clapton, Patsy Cline, Jimi Hendrix, Bob Marley, Nirvana, the Police, Rod Stewart, the Who, Hank Williams and the Motown catalog.

An impressive array, to be sure, but it's hard to imagine a store like a Texas/Americana-heavy store like Cactus -- whose general manager Quinn Bishop would not comment for this story -- giving over a third of its best space and a quarter of its shelves to these artists, especially when you factor in the likelihood that the other four labels are probably going to follow suit and make similar demands. Such a scenario would quickly get absurd. You can't pull a Max Bialystock and give more than 25,000 percent of your store to the Big Five and still have room for the independent product.

To comply, Cactus and Soundwaves would have to resemble the music sections at Best Buy or Wal-Mart, so good-bye world music, dance, blues, alt-country, Texas music, underground rap, bluegrass and zydeco sections, hello acres of Shania and Mariah. And good-bye everything that we love about those stores.

Something tells Racket an antitrust or collusion lawsuit or two might be in the works…Or maybe not. Have you seen the soup aisle in your local Fiesta lately? You've got plenty of choice, so long as you like Campbell's or Progresso. Maybe that's the way music retail is headed.

At any rate, as of press time the Coalition of Independent Music Stores had serious reservations. After initially welcoming the move, CIMS president Don Van Cleave said that Universal's demands were "totally impossible" for indie retail to comply with.

"The very nature of a store being 'independent' is that they choose what to promote based on customer tastes and not necessarily label priorities," Van Cleave added. "We have to understand what is truly expected of us before we can endorse this move. I stand undecided at this point."

On the other hand, if the other four majors don't join in with discount programs of their own, Universal's move could backfire. Joe Public sees a cheerful spot on the TV news about cheap CDs. "Mmmm, cheap CDs," he thinks, not understanding the fact that only Universal is doing it, that it's a participation program, that Universal is the parent company of many smaller labels. Then Mr. Public goes to do his Christmas shopping and finds that most CDs are as expensive as ever, and many that are at the new cheap price are not apparently on Universal but on Universal-owned imprints such as MCA, Island/Def Jam or Mercury.

But what if most of his favorite artists weren't on any of those labels? A disgusted Joe would likely rev up the ol' CD burner again if the RIAA wasn't savvy enough to put the fear of litigation into him. Even so, it wouldn't add up to the kind of sales boost Universal so desperately wants.

For their part, indie record labels, which can little afford to cut prices as deeply as high-volume sellers like Universal, are as troubled by the move as indie retailers. "We don't know what we're gonna do," says Compadre Records manager of secondary distribution Greg Ellis. "It was a surprise. It seemed like a pretty hostile move to indie labels, because it kind of forces you into that position."

Artists and record producers are also probably going to be taking a hit, since royalty rates are calculated on sticker price and not units sold. If the low prices don't translate to significantly higher sales, there goes another big chunk of change.

At any rate, Infinite's Ritz sees this as an example of rearranging the deck chairs on the Titanic. A few years down the road, he envisions a world wherein only mass-market CDs are available at mass-market outlets and nothing else will be for sale anywhere except for on the Net and at concerts.

"It's almost too late for this," he says. "No matter what they do, I think the majority of CDs will be out of print in the next couple of years. The independent record stores are gonna continue to shrivel up and go away, and people will be buying the hot new hits and the catalog that always sells, like Dark Side of the Moon, at places like Wal-Mart and Sam's Club and Best Buy. The Internet is gonna be where people buy the majority of the interesting music."

So in the short run, Universal and big retail are the big winners, to a much greater extent than consumers. The Wal-Marts of the world are going to see increased business from people who refuse to pay more at nonparticipating stores, and since they never went in much for co-op advertising, they won't be seeing an evaporation of label money.

As for Universal, they get to keep a bunch of their ad money, and an almost certain boost in sales and a surefire boost in marketing -- all those endcaps and windows -- and lower royalty payments and leverage in the fight against piracy.

As for the consumers? Well, as long as it's on Universal we'll save a few bucks per CD. But as usual, the consumer appears to be an afterthought.


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