By Gili Malinsky
By Bob Ruggiero
By Hilary Hughes
By Peter Gerstenzang
By David R. Adler
By Devon Maloney
By Brian McManus
By Jessica Hopper
The face of the music industry changed dramatically last Wednesday, when Universal Music Group announced that it will slash most of its CDs' list prices from $18 or $19 to $13, as of October 1. In effect, this means that Universal's discs, which account for almost 30 percent of CDs sold in America, will be sold in many stores for under $10 (the wholesale price will now be $9.09). Basically, the company has punted: They're taking a significantly smaller profit margin on every album sold, and hoping they'll make up the difference on volume. Universal is also eliminating much of its budget for promoting new albums in stores with co-op advertising and discount programs. That can't be good for retailers like Tower and Sam Goody, which are already in a precarious financial position and hoping that holiday profits will pull them through.
Now the other major labels face a tough decision. If they don't cut their own list prices to match Universal's, they risk being undersold; if they do, though, they gut their own profit margins, and leave themselves open to the (very reasonable) charge that the industry has artificially fixed CD prices too high for years. Smaller independent labels may be squeezed even further; after years of touting lower prices than the majors (despite higher manufacturing costs) as a selling point, many of them will suddenly find their discs comparatively more expensive.
Universal's public spin on the price cut is that it's an attempt to stay competitive at a time when they're losing sales to file-traders. The company's announcement came the day after the Recording Industry Association of America announced that total music shipments to retailers had fallen 15.8 percent in volume from the first half of last year to the first half of this year. That's not the drop in sales (which according to Nielsen SoundScan is around 8.5 percent this year), mind you, it's the number of discs sent to stores minus the number returned. Arguably, a lot of the 15.8 percent figure comes from labels and stores managing their inventory more efficientlybut it's in the RIAA's interest to use numbers that make the situation look as grim as possible. And even if file-trading is everywhere, sales drops aren't: In the U.K., total CD unit sales for the first half of the year were up by 3 percent, the highest they've ever been.
It may be that American consumers are simply turned off by the RIAA's bludgeoning tactics, the latest of which is the file-trading "amnesty program" in which they'll be soliciting notarized confessions. Senator Norm Coleman, Republican of Minnesota, has been questioning the organization's recent spate of Digital Millennium Copyright Act subpoenas; the RIAA, in turn, has been trying to convince him that they're not going to be indiscriminately suing everyone within range, although they're still pretty vague about who will be facing their legal wrath. The Webcaster Alliance has filed an antitrust suit against the RIAA, alleging that they've colluded to fix the royalty rates for Net broadcasters so as to freeze out smaller webcasters. Universal's announcement of its price cut also noted that "this month, the Judiciary Committee of the U.S. Senate will hold hearings alerting the public to the uncontrolled dissemination of pornography through P2P services . . . including child pornography." Meanwhile, a couple of Internet radio sites are calling for an ethics investigation of Republican U.S. House Judiciary Committee chair F. James Sensenbrenner Jr. of Wisconsin, who took an $18,000 trip to Taiwan and Thailand back in January on the RIAA's dime.
Under the circumstances, it's not surprising that some music buyers are trying to avoid downloadingor buyingmusic on major labels altogether. A new site called RIAA Radar (at magnetbox.com/riaa/search.asp) will check to see if a given artist or label is "RIAA-safe." They also maintain a list of the top 100 non-RIAA-affiliated albums at Amazon (current top three: Warren Zevon, Steve Winwood, the Waifs).
File-sharing programmers have been getting more militant, too. One recently launched application, Earthstation 5, fills its site with "take down the evil empire" rhetoric, and claims to offer very strong encrypted anonymity for file-traders, with no spyware attached. It also claims to be run from the West Bank Jenin refugee camp, which is a little dubious (especially since the company's incorporated on the tax-shelter island of Vanuatu), and it's unclear who's paying for them to run the service, not to mention its six continuous porn feeds. Nonetheless, its existence is more proof that the harder the music industry kicks, the harder the Internet kicks back.