Friday, October 24, 1997
Why you can’t buy CDs for a song
MUSIC: Manufacturers, distributors and record stores profit from
high prices, but consumers take their money elsewhere.
By Jeremy Engel
Daily Bruin Contributor
Your stomach growls. You need a burrito. Whoa, jackpot! You spot
an ATM. You make a $20 withdrawal, then hurry off to feed yourself.
On your way, you see a record store. You really want that CD you
heard in your friend’s car, so you decide to go for both. Your
crisp new $20 bill should cover it. Moving through aisles, flipping
through discs, you find your prize. You cruise to the counter, CD
in one hand, cash in the other.
"Will this be all?" asks the clerk.
You nod and fork over your money. The clerk puts your disc in a
bag, and hands it to you along with $1.14 in change. That’s right,
$1.14. Bye-bye, burrito.
Most consumers these days feel they pay too much for compact
discs. At $16, $17, even $18 each, who can blame them?
Understandably, CDs are more than just cheap pieces of plastic:
They’re slivers of soul, orbs of expression, wedges of musical
creativity. But $17.99 plus tax for half a dozen songs? The top
price for a single CD used to be $16. 99. Why the sudden
increase?
"I can’t think of any reason besides greed," says Aaron Wiseman,
a buyer for Tower Records in Westwood. "It’s not like the music is
getting better, so they shouldn’t raise the prices."
According to Wiseman, record retailers pay record distributors
on average $10.80 for CDs that cost consumers $15.99, $11.20 for
CDs that cost consumers $16.99, and $13 for discs costing $17.99.
Many new releases go on sale at record stores for $11.99, but
distributors still sell them to retailers for $10.80, giving shops
a profit of just over a dollar. Although distributors recently
raised prices 30 cents for retailers, according to Wiseman, record
stores can’t raise prices any more because consumers already feel
like they are being overcharged.
Record companies offer several explanations. One executive at
the independent label Epitaph, who wished to remain anonymous,
claims, "We sell to distributors, not directly to stores. The
distributors hike up prices to make themselves more money."
So are distributors the ones to blame?
"All we deal with is the record label’s percentage and ours.
They manufacture the product – we distribute it," explains Risha
Bell of Red Distribution. "The consumer really doesn’t get that
much of a markup because there’s so much of a cost for marketing,
production, royalties and so forth."
Not all record companies deal with independent distributors, so
distribution is hardly the lone culprit for high-priced CDs. Larger
companies, such as Warner, Elektra & Atlantic; Universal, and
Sony distribute their own product.
Interscope marketing guru Staci Yamano says that her company’s
product, along with Geffen’s and MCA’s, is distributed by
Universal.
"Universal and WEA distribute to places like Best Buy and
Blockbuster. For smaller stores like Penny Lane that only want to
buy 10 CDs or so, Universal sells to what we call one-stops, sort
of mini-distributors," Yamano says.
Interscope handles artists from Death Row, as well as bands such
as Bush, No Doubt, Nine Inch Nails and the Wallflowers.
"A lot of people like to talk about how greedy the record
business is, but it’s just like any other business," explains Jill
Swan, who takes care of distribution for Caroline Records. "The
money goes to royalties, publishing, mailings, promotions and other
costs that are involved."
So what’s Caroline’s reasoning for the price increases?
"Actually, we lowered a bunch of prices this summer," Swan
counters. "Our catalog was midlined, which means we took
full-priced CDs to a lower price."
"Catalog" is industry speak for old music that has been
previously released. Caroline’s catalog includes first albums from
the Smashing Pumpkins, Hole and Primus. They also handle new
electronic music from artists such as Fatboy Slim and Chemical
Brothers.
"CDs were originally supposed to offer a better sounding and
cheaper way to hear music than cassettes, but that’s no longer the
case," says Robert Hilburn, a pop-music critic for the Los Angeles
Times. Despite the hefty sum now required to purchase discs, "CDs
are comparatively cheaper in the United States than they are
overseas," Hilburn says. "In England, for example, it’s very
expensive."
This may explain why surveys indicate that young buyers are
turning away from CDs in favor of video games, movies and
cyberspace, as Hilburn points out in his article, "What’s Wrong
With the Record Industry." Overpriced CDs may also be a reason, as
Hilburn’s article states, that the Wherehouse and Camelot filed for
bankruptcy protection, and Blockbuster and Musicland (Sam Goody)
are struggling. Record retailers can return unsold product to
distributors, but they wind up paying about 45 cents on the dollar,
unlike book retailers, who can return unsold book copies to
publishers at no charge.
Huge stores such as Best Buy, Wal-Mart and Circuit City offer
consumers a less expensive alternative to places like Tower Records
and Blockbuster Music, giving already struggling record retailers
yet another source of anguish. Megastores can afford to charge less
because CDs are not the primary product – they are only bait.
Customers stroll in for Boyz II Men’s latest single, and stroll out
with a stack of albums and three television sets.
As the Internet and cable companies exploit new technologies
that might someday make hard copies of CDs obsolete, discs continue
to cost a bundle.
And record companies fail to give clear cost breakdowns when
questioned about specific percentages going to pay for specific
costs. For example, Wiseman claims that CDs cost about 50 cents to
manufacture, and Robert Hilburn states in his article that
superstars earn about $2 per album sold from major labels. That
adds up to $2.50, leaving a lot of gray area for marketing,
promotion, distribution and other expenses. These numbers come from
a record retailer and a pop-music critic: Record companies
themselves were hardly obliging when asked about money.
"Royalties and other costs are negotiated at the time of each
deal," Swan says. Sales and distribution personnel at each record
company contacted claim that percentages vary from deal to deal, so
it is difficult to generalize where the money goes. One trend in
the wake of these price hikes involves CD consumers looking to
spend their money elsewhere because CDs have become so
expensive.
Perhaps in the near future, you will be able to enjoy a savory
burrito with your new CD. Meanwhile, consumers will have to make
their choice, or shop around.