The CD Price Cuts — Fallout

Today’s NYTimes suggests that Universal’s CD price cuts are going to be felt in unheralded, but unsurprising, places: CD Price Cuts Could Mean New Artists Will Suffer [pdf] The agonies of industry change, or something more sinister?

Initially delighted by the promise of lower CD prices, Mr. Groeger and other independent retailers quickly soured on the details of the plan, which he says will hurt independent music stores and developing artists. The plan squeezes stores’ profit margins on each CD and ends promotional subsidies to retailers to push new albums like Thursday’s.

“I care about that band a lot, and I care about developing artists more than anyone,” Mr. Groeger said Saturday in a telephone interview. “But I told him it is a two-way relationship. They are hurting me with these new policies. I don’t see why I should help them out.”

[…] In addition to ending various promotional subsidies, these critics say, Universal’s new pricing system further squeezes the profits of the hard-pressed independent music stores and specialized chains like Music- land or Tower — the places that typically give artists their start. Such stores have already been closing in droves, with hundreds more expected to shut down this year.

“Emerging artists are going to be shut out because of the fewer dollars flowing to independent retailers,” said Robert Haber, founder of CMJ Network, which tracks new performers and college radio playlists. “Things that are not good for independent retailers are not good for emerging artists.”

If the policy thwarts the development of new talent, it could boomerang to hurt the major labels as well. Building audiences for the new acts that might become next year’s blockbusters is a growing problem, label executives say. The swift consolidation of the commercial radio business and its use of more scientific market research is making it harder to get air time for unfamiliar artists. Meanwhile, mass merchandisers like Wal-Mart Stores and other chains like the electronics giant Best Buy, which seldom stock any unproven artists, increasingly dominate music sales. Mass merchandisers and chains together now make up more than 80 percent of the market.

[…] But Universal also faces a market dominated by the mass merchandisers, said Michael Nathanson, an analyst with Sanford C. Bernstein. “It is going to be ugly for the independent stores,” he said, “but the music companies are in a no-win position right now.”