RETAIL, INDUSTRY
RESPOND TO UMG MOVE

The fallout is still being felt following UMVD’s startling announcement that they are slashing prices and eliminating retail co-op.

While some retailers agree with CIMS President Don Van Cleave’s assessment that the terms of the agreement are "totally impossible" to comply with, others have already signed the agreement.

UMVD honcho Jim Urie confirms that Newbury Comics, Hastings and the Portland, ME-based, nine-store Bull Moose chain are all aboard and that a number of others will soon follow suit.

One retailer likened the lack of co-op to a new tenant moving into his house, picking out his bedroom and starting to redecorate without paying any rent.

Newbury founder Mike Dreese disagrees: "It’s an amazing trade-off! The sky is emphatically not falling. This makes overwhelming business sense for us. I would be more concerned that it makes good business sense for UMVD."

Urie explains: "This is about the labels giving up some control over how much product they can force into the marketplace and retailers giving up some control on their merchandising space. Everybody’s got to take a step back to let this happen, because the theory behind this is, ‘stack ’em up and blow ’em out.’"

Many believe that the high-overhead mall operators will be impacted most by the new program. Not surprisingly, Trans World topper Bob Higgins stops short of totally endorsing the new plan: "Any program that has lower prices is good for the industry and good for the consumer. However, we have to make sure it works for the retailers as well as the distributor."

As for the much-talked-about six-point haircut in margin, from 36% to 30%, Dreese insists: "There’s a fantasy out there that somehow UMVD is dictating retail price¼ They are not, never have, and it would be illegal for them to do so. Anybody with a pricing gun sets their own margin, and they do it every day."

There was plenty of talk off the record, due in no small part to UMVD’s roll-out plan that more than one retailer termed "shrewd." Says one executive, "After they’ve gone directly to the consumer press, what retailer can go on the record now speaking out against lowering prices?"

Urie defends the plan: "Anybody that doesn’t realize this is a whole new world, and there are whole new business models that need to be developed, is missing the point. People that try to fit this in to the way that they are already doing business will have a problem. They have to look at buying, merchandising and messaging to the consumer differently, because that’s what we’re doing."

Dreese agrees: "You have, in my view, some people that are not very clever trying to lawyer this thing in the first three days and getting caught up in a bunch of histrionics that are not especially helpful."

Still, with no rebates, discounts or co-op considerations, what incentives do retailers now have to bring in developing artists?

"We will have a set percentage of their developing artist space," says Urie, "and titles to populate that space will be mutually agreed upon."

Dreese: "Retailers who don’t pay attention to developing acts will find that their customers migrate to the web, in case anyone isn’t paying attention out there. You have to make your customer happy. And the day you consider the label your customer is the day you go out of business. And we have too many retailers who think the labels are their customers."

How does all of this affect the racks?

Until now, Wal Mart and Kmart have never known what deals were cut between labels and their suppliers. Now it’s common knowledge what the racks are paying on every UMG record.

"Handleman and Anderson do a very good job," says Urie. "We’re not going direct with anybody. This is not about that. We couldn’t if we wanted to and we don’t want to."

Even outside the retail world, record business lips continued to flap about UMG's bold initiative.

Leading attorney Fred Davis says: "Our industry is broken, and I applaud any leadership and moves that attempt to correct the problems that we have. But until we have an effective means to compete against the free services such as Kazaa, pricing of CDs is irrelevant."

The Firm’s Andy Gould wondered aloud about the effect on artist development of the new pricing structure: "I don’t think people would have such a problem paying money for something if it was good. And what happens if we drive retailers out of business? We drive [consumers] to the Internet, where you can either buy it or take it. People who have never thought of downloading will probably go, ‘Shit, you can get this music for free? And the only thing we’ve got to worry about is a subpoena?’ What a fucking joke."

Averred one Internet pundit: "This is like lowering the price of stamps to encourage people to write more letters."

With additional reporting by Jon O'Hara