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"The way to jumpstart the business is to put out good music. Business being crappy has nothing to do with prices."
——Tower Records EVP/COO Stan Goman

THE PRICE IS RIGHT

Can Rebates, Discounts and Other Pricing Plans Jumpstart Sales?
As the music business looks for ways to regain the attention of consumers, deeply discounted CDs are gaining in popularity as a way of trying to break new artists. Murder Inc./IDJ’s Ashanti, A&M/Interscope’s Vanessa Carlton, Blue Note’s Norah Jones and Aware/Columbia’s John Mayer are brand-new artists who have sold a lot of inexpensive full-lengths. Another approach are EPs, witness DreamWorksApex Theory and MCA’s Something Corporate, which give consumers a chance to try something new without a full-priced investment.

In the case of Ashanti, IDJ offered retailers a two-dollar rebate for each copy of the singer’s debut album that they sold during the first two weeks the record was out. In some places, the disc was priced as low as $8.99. The record sold 500k the first week, 229k the second. That’s a lot of dough. The Vanessa Carlton rebate was even larger—$3.50 per disc sold in the first two weeks. She has sold 166k in her first two weeks of release.

Rebates are a relatively new wrinkle on developing-artist prices, where retailers pay less for CDs and pass the savings along. When it’s time to bump up the price, retailers can frontload an order at the discounted price. Rebates, however, are based on sales, not orders, so it has a firm cut-off date. Additionally, labels argue that the fixed costs for marketing an act are the same, whether they charge $15 or $11 for a CD. One thing that they're asking for is discounted co-op pricing structures on developing artists.

Says Elektra Records Sr. VP Sales Ron Spaulding: “With the singles/maxi business essentially dead, lower-priced EPs and/or short-form records priced at under $10 give an entry-level price point that consumers don’t have. It’s either $20 or nothing. Or if you take hit product represented in retail circulars into consideration, it’s either $12 or nothing. I’m looking at the EP as a bridge between records, for an act that is perhaps changing sonically and we want to get that message out before we drop a full-length. Otherwise, I think that you come with a developing-artist price on a new band. The problem with looking at these lower priced records, particularly when you start talking about EPs and short-form records, is that his is a partnership and I can’t pay the normal fare at retail for price and positioning. Logically, you can’t charge the same price on a short-form record under $10 as you can on a record that’s out at full price.”

But with a shorter window of lower prices, does it help sell more records, or do people buy the cheap records only as long as they’re discounted?

Said one label sales guy: “Nobody’s really sure. We could lose our shirts doing this. I don’t want it to become the normal course of business, because then we could get into 49-cent sale pricing again. I’d hate to send the signal that this is something profitable for labels and jump-starts sales, because then every artist on our label will call me wanting it.”

And it’s not just new-artist CDs that benefit from discounted prices. All of the distribution companies have their own catalog deals, and EMI will soon roll out a rebate plan on catalog pieces.

Tower Records EVP/COO Stan Goman says that the strategy of lowering prices is great, citing Sony’s “Hitsavers” program, which offers just-off-the-charts frontline product at a discounted price—but rebate programs create a lot of accounting headaches and aren’t a be-all to getting the business back on track: “The way to jumpstart the business is to put out good music. Business being crappy has nothing to do with prices. It has more to do with crappy music and the fact that they haven’t developed any artists over the past 10 years. Yeah, I think records could be cheaper…but records could be better, also.”

Don Van Cleave, President of the Coalition of Independent Music Stores, says that indie retailers are working with the labels to help lower marketing costs, but that labels must also look within. “If CD prices fell, many of the problems would go away, but no one is set up to deal with lower-priced CDs. The way labels operate, the way they spend money, and with all the costs built into breaking an act… can they make any money at $10 or $11 at retail? I would say they can’t. We’re looking to offer more diversity in programs and make the entry into those programs much cheaper. We’re trying to provide lower co-op costs. But are artist advances getting lower, are radio indies getting lower, are videos getting lower, is touring getting lower? There’s a whole lot more to the expense side of the equation than just retail co-op.”

Says Arista Records Sr. VP Sales Jordan Katz, whose company is doing a discount on the just-released Puff Daddy remix album and is planning to roll out a line of aggressively priced catalog pieces, including DVDs, says: “In a land where we compete against free, we have to be cognizant of price points and really think hard about what we do. What we’re doing, in conjunction with BMG, is moving several titles into the $13.98 “Star Value” line, as well as creating a $9.98 line.”

Elektra Records CFO Rich Bengloff told Rolling Stone that Elektra didn’t try to deep-discount the Tweet record, which streeted the same day as Ashanti, because the result of adding another cost would be “you almost couldn’t even make money on it.” He estimated that IDJ gave up $1.5 million in profits because of the Ashanti rebates.

But that’s the rub. If IDJ sold 300,000 more Ashanti records because of the price, they broke even. Not to mention the additional press and buzz generated because she was a brand-new artist debuting at the top of the album chart.

As one label insider put it, “If you’re not shipping more than you would without the discount, you’re losing money. The economics are really tough and the jury is still out on whether or not this is a good idea.”

Feel free to email David Simutis if you’d like your voice added to this discussion. Additional reporting for this story by Mark Pearson.

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