It’s the Price Stupid

Whilst the British music scene basks in the post-Brits glory (not to mention post after party haze) its worth reflecting on how important good music is. I know it sounds like stating the bleeding obvious (which it is of course) but the music industry (and I think we’re now safely at a time where we can stop calling it the ‘record industry’) is still a hits driven business. It doesn’t matter how well run your label might be, if you don’t have a good artist roster then you’ll eventually come unstuck.

But….and this is a very big ‘but’….you can still mess things up if you screw around with the pricing. UK music sales picked up after a slump not just because of good artists, but because CD prices dropped. And they dropped significantly. It is no coincidence that UK music sales were at their weakest when album prices were at their highest. An average chart album would cost 13 to 14.99 pounds in high street music shops. The added problem was that at the same time CD burning was just beginning to take off as well, enabling consumers to get high quality copies for free. With taping you always had to accept a drop in quality. So whilst consumers were queuing up to buy their 15 pound albums they were stood next to big bins of blank CDs for 20 pence or so each. Which got many thinking, if that’s all it costs to make a CD, why on earth am I paying this amount?

Not everyone got it wrong though: the supermarkets (especially Tesco) and the online pure plays (Amazon, CDWow etc.) were selling chart albums for as little as 7.99. The net result is that the big music retailers began to see both declining overall music sales and declining market share. They responded with significant price reductions, so that by 2004 we had 9.99 and cheaper chart albums. Lo and behold sales went up.

But instead of recognizing that they had found the optimum price point / sales margin balance, the big retailers took the increased sales as a cue to hike up prices again. So now if you walk into HMV or Virgin you’ll pay 13.99 again for a chart album. Yet the cheaper alternatives remain cheaper, for example I paid 6.99 for the Editors in Tesco and it was 13.99 in Virgin.

All that will be achieved by higher prices in the high street is driving people away from buying music again. And I’ll preempt the counter argument that overall album prices are declining because of frequent discounting on back catalogue by going back to my first point: the music industry is still a hits driven industry. Mining the long tail is of course a vital part of the business, but if you don’t have big selling hit artists you are killing off the Golden Goose. It’s the price of chart CDs that matters. It’s how much you pay for the Kaiser Chiefs, the Arctic Monkeys, KT Tunstall and James ‘if I hear that song one more time I’ll scream’ Blunt that matters, not 12 Bars More by Status Quo.

So I’ll put my reputation on the line here. Despite all those great releases…..I go on record as forecasting a decline in first half 2005 UK CD sales. You heard it here first folks….