Record Labels Trying Something New: Lower CD Prices

<i>Record labels try sliding scale

Releases debut at low prices but aim to sell high
By SHANNON BUGGS
Copyright 2002 Houston Chronicle

Lil Flip, the star act of Houston-based Sucka Free Records, came home this week to promote his debut on a major record label.

Appearing on a local radio station's morning show, he surprised listeners when he said some retailers would be selling his hip-hop double album, Undaground Legend, for $5.99 during the two weeks after its Tuesday release.

"Everybody else's double is $10 or more," Flip told the Chronicle. "Bootleggers go out and get that and sell copies. But when the album is just $5, why bootleg?"

Indeed, Rynda Johnson, a Worthing High School freshman, said the price was low enough for her to buy it the day it made its debut.

"I buy a lot of bootleg because I don't see why I should pay $18 for a CD when I can get a copy that's just as good," she said. "But a lot of the bootlegs cost more than $6, so I might as well get the real thing this time."

Record companies blame people making illegal copies for the drop in sales of recorded music last year, the first time that's happened in a decade.

To prevent a two-year sales slump, the industry has been rethinking the way it prices its products.

Music manufacturers are using rebates and tiered pricing schemes to encourage retailers to put low introductory prices on new releases in order to build a buzz for discs.

"I wouldn't say that it's a way to buy their way up the charts, but that's part of the game plan," said Ed Christman, Billboard's senior editor for retail. "They're trying to capture the attention of consumers so that they will buy it and create sales, which moves (a disc) higher up the charts."

Independent retailers have long complained that consumers won't pay top prices for new releases, new artists or new types of music because they're not sure if they will like what they get.

"Record companies know that CDs are too expensive," said Quinn Bishop, general manager of Cactus Music and Video in Houston. "CDs under $10, any way you look at it, is a good thing."

But that argument has not carried as much weight with music companies as the marketing strategies of mass merchandisers have.

The big chains and Internet sites often use music as a loss leader, charging less for discs than what they've paid for them wholesale, to drive customers into their stores.

Consumer electronics competitors Best Buy and Circuit City both had Home, the new release from country superstars Dixie Chicks, priced at $9.99 this week.

Discount department stores Target and Wal-Mart engage in similar price battles. Their Sunday circulars consistently have new artists' work priced at $6.99 and superstar releases below $13.

Music companies have countered that the higher prices they suggest to retailers reflect the cost of producing and promoting discs.

Last year, Island Def Jam was the first label to try to push past the $20 barrier when it released rapper Jay Z's The Blueprint with a list price of $19.98 in September.

But the faltering economy slowed down the effort to increase disc prices. Although consumers have continued to spend after last fall's terrorist attacks and the layoffs that followed, they've bought bargains rather than indulgences.

Record companies are pushing the message that music is a good value compared to other forms of entertainment, such as DVDs and video games, and they've been experimenting with pricing to underscore that point.

One way they're doing that is by aggressively using traditional "developing artist" pricing to keep suggested retail prices under $15 for little-known musicians, such as folk rocker John Mayer and jazzy songstress Norah Jones. As units sell, the prices gradually rise.

Last year, Mayer's major-label debut Room for Squares could be purchased for as little as $6.99. Now, that it's close to selling a million copies and being certified platinum, the disc sells for about $18.

Music labels also have been offering retailers rebates for every copy sold of selected releases as a way to persuade retailers to deeply discount a disc.

The most successful use of a rebate program this year was for R&B singer Ashanti's self-titled first album. It debuted at No. 1 on the Billboard 200 chart and sold more than 750,000 copies, giving it gold status, in the two weeks after its March 28 release.

Although Flip is just the latest artist to put a bargain-bin price on a new release, he may have established a new price floor.

"I've never heard of a double album priced that low," Billboard's Christman said. "But I've also never heard of him."

Flip is trying to change that.

Before he signed his current distribution deal, Flip sold 150,000 copies of The Leprechaun, which is what got the attention of Columbia Records Group, a business unit of Sony Music Entertainment.

Now that he's with the world's second largest music company behind Universal Music, Flip is expected to post much bigger numbers faster. That's why he's put a rock bottom price on a two-disc package.

"It's a sales gimmick," said Duane "Hump" Hobbs, who shares with Flip the title of chief executive officer of Sucka Free Records. "We're doing it to increase our sales in the first few weeks."

"This is a marketing and numbers game. To win, you gotta have both."

Because it's a double album, every sale counts as two units, instead of one. So, Flip only has to move 250,000 copies of Undaground Legend to get gold status.

To make sure that happens, he was in Houston Tuesday doing miniconcerts at Jack Yates High School and his alma mater, Worthing High School. His entourage pumped up the crowd by handing out CDs, posters, inflated balls, glossy black-and-white photographs of Flip and dollar bills.

"We know the economy for music is bad right now," Hobbs said, "so, we're hyping this album any way we can." </i>