Universal Eases Off on CD Price Plan

Universal Music Group, the world’s biggest record conglomerate, is revamping its initiative to slash CD prices after months of resistance from cash-starved retailers, people close to the label said.

The Vivendi Universal unit, home to such acts as Dr. Dre and 3 Doors Down, plans to raise its suggested retail price for most new CDs to $13.98, an increase of $1, they said. The company will set wholesale prices on most new releases at $9.49, a 40-cent hike, and the price on the hottest new CDs will rise to $10.35, up 25 cents.

Universal stunned the industry eight months ago with the announcement that it would slash the wholesale price of its CDs by 25% in a bid to revive an ailing market and discourage piracy.

At the time, Doug Morris, Universal Music’s chairman, said the cuts were intended “to reinvigorate the record business in North America” and would remain in force at least through the holidays.

But Universal’s competitors didn’t follow suit with wholesale price cuts. Some record label executives privately dismissed the price-cut plan as a promotional ploy aimed at boosting short-term sales numbers.

Moreover, some retailers complained that the new system unfairly squeezed their profit margins. They also objected to Universal’s decision to end so-called cooperative advertising, the subsidies it had previously paid to purchase retailers’ ads.

As a result, many stores didn’t cut retail prices on CDs as much as Universal had expected, and instead pocketed the difference between the lower wholesale prices and what they charged their customers. For Universal, its pricing maneuver didn’t result in the hoped-for lift in sales.

Now, with the new pricing system, effective April 26, retailers should have more incentive to cut their retail tags, sources said.

Taking the wholesale price of most new releases to $9.49 from $9.09, for example, is projected to increase a retailer’s margin to 32% from 29%, they said.

Once the plan is implemented, Universal Music’s CDs should still cost much less than the $18.98 suggested tag that was in place before it announced its price-cut plan.

While boosting prices slightly on new releases, Universal soon will offer additional discounts to retailers to lower prices on older catalog titles. For example, sources said, the label will charge $7.78 per CD wholesale for some releases, down from $9.49.

Insiders said that Universal remained committed to low prices but needed the latest shifts to make its sales projections “reasonable.”