Even as publishers insist on increasing the pricing of their e-books to over $10, Universal Music Group is going to experiment with dropping its CD prices to below $10. Beginning in the second quarter of 2010, Universal’s single CDs will be repriced with MSRPs ranging from $6 to $10, rather than the $10 to $12 they currently are.
In considering the reason for the change, Billboard notes
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.
This reminds me an awful lot of how Amazon has determined $9.99 is a “magic price point” for selling e-books, too.
The price change is not necessarily permanent; UMG insists that it is a test to study the effects of the pricing change, and has not committed to it yet. Still, it represents a considerable change in industry thinking.
Retailers may not be entirely happy about this change, given that the price difference is apparently going to be deducted from the retailer’s share. These discounted CDs will be sold at a 25% profit margin, meaning a $10 CD will cost the retailer $7.50.
I’m not sure what the usual profit margin has been to date on CDs, but the profit margin from paper books is usually 50% (a $26 hardcover costs Amazon $13, which is how Amazon is able to slash prices so much).
At any rate, these changes will bring CD prices on many Universal albums to cheaper than they can be had through iTunes. Perhaps it’s a sign that the CD is finally on the way out?
It is interesting to see one of the big record labels try lowering prices like this, given that in the 1990s they were investigated by the FTC for collusion to raise CD prices. Perhaps in a few years, publishers will start reducing the prices of their paper books as well.