No More Mr. Nice Price
In mid-August, Universal Music Group--the record conglomerate that owns Deutsche Grammophon, Philips, Decca, MCA, Geffen, A&M, Polydor, Motown, Verve, Mercury, Interscope, Island, and Def Jam, among others--announced that it was raising prices for 350 of its most popular releases. For the music industry the big news was that UMG had broken the $18 ceiling on back-catalog titles, establishing a standard $18.98 list price for eight greatest-hits CDs by superstars like Aerosmith, Eric Clapton, Jimi Hendrix, Bob Marley, and Tom Petty, and guaranteeing that the other major record companies will follow suit. Another 216 "frontline" titles jumped from $16.98 to $17.98, including Nine Inch Nails' The Downward Spiral, Marilyn Manson's Antichrist Superstar, and Garbage's Version 2.0. But in the long run record buyers might be hit hardest by UMG's decision to jack up prices for 33 of its "midline" titles, from $11.98 to $17.98 or $18.98--a 50 to 58 percent increase.
Midlines are older titles whose sales have dropped off. By reducing a record's list to the "nice price" of $11.98 or $10.98--which a large retailer can reduce further, to $8.98 or even $7.98--a label can keep its back catalog in stores even as more and more product competes for shelf space. Midlines are a boon to consumers (who can buy CDs for the price of old LPs), retailers (who can score impulse sales on inexpensive oldies), and artists (whose older albums might stay in print longer). But UMG seems willing to contravene that logic for the same reason a dog licks its balls--because it can. As Jim Urie, an executive vice president of Universal's distribution arm, explained to Billboard, "When midline was first conceived, it was for products that weren't good enough to be sold at full price. Over the last 15 or so years, that somehow evolved into moving a massive number of titles down in price, regardless of selling strength. The records that we increased are all excellent pieces of product that deserve to be at the higher price and will continue to be consumer favorites at full price."
"I don't think so," says Joe Kvidera, manager of Tower Records in Lincoln Park. "When something's on sale for $8.99, suddenly it triples or quadruples its sales. So you've got to think that the vast majority of people are buying them as impulse purchases. And when you get something that's $17.98 or $18.98, as some of them are gonna be, they're just not gonna be impulse purchases anymore." One of the UMG titles that leapt from $11.98 to $18.98 was Jimmy Buffett's Songs You Know by Heart; when news of the price hike reached Tower, the record was on sale for $7.98--less than the store would soon be paying for it wholesale. Retailers used to pay about $7 for UMG midlines, but now they'll pay about $12. A large operation like Tower will be able to order in bulk and keep the prices down around $16, but an independent store typically orders only one or two copies of an older title and has to reduce its profit margin to keep the price down. "There's a certain amount of major-label product that we severely underprice," says Jonathan Hawpe, manager of Reckless Records in Wicker Park. "We don't make all that much money on them, because we don't want to put them out for that much." But some titles are so expensive that Reckless will just take a pass, especially on something it can sell used for a greater profit.
UMG probably doesn't care whether Reckless stocks Songs You Know by Heart; most of the midlines it promoted to frontline status are the sort of stuff my mother listens to while she's ironing. "Generally you'll see jazz, classical, easy listening, that type of thing, go up in price," says David Hoeltje, vice president of purchasing for the huge distributor Pacific Coast One-Stop. "They feel that those are being purchased by middle-class people with higher incomes that generally go out and buy, not necessarily infrequently, but not as often as somebody who's 17 or 18. So they feel that there's gonna be less resistance at that level." And if Marvin Gaye's Every Great Motown Hit or the sound track to The Big Chill (a whopping 31 minutes of music) really can sell for $18 or $19, UMG will turn a greater profit on two copies than it used to turn on three. "They don't care if they sell Marvin Gaye records or not, as long as they make money," says Kvidera. "That's the bottom line--as long as there's more money at the end of the day, they don't care what happens."
Rising prices don't just widen the gap between chains and mom-and-pop stores--they also increasingly distinguish major labels from indies. "If you deal with a lot of independent labels direct you're gonna get a pretty decent price," says Mike Felten, owner of Record Emporium in Lakeview. "Like Bloodshot. I just go over to Irving Park and pick up the stuff, and I can sell it for $12.99. If I ordered it through a distributor I'd have to sell it for at least a dollar more, but still their list price is a lot cheaper. So they're trying." Distributors that specialize in indie labels, like Mordam Records and Alternative Distribution Alliance, have initiated midline programs that let labels pool their advertising dollars and discount selected titles. Most indie labels never build up enough of a back catalog to warrant their own midlines, but in 1997 Matador, one of the largest, began pricing classics by Pavement, Superchunk, Liz Phair, Yo La Tengo, Pizzicato Five, and Guided by Voices at $11.99. The series was so successful that this year Matador added more titles and started a low-budget line, listing old albums by bands like Chavez, Come, Helium, and Thinking Fellers Union Local 282 for $9.99.
Unfortunately those companies are small fry compared to UMG, which took in $6.3 billion during fiscal year 1999. Last year its parent company, Seagram, spent $10.6 billion to gobble up Polygram, which included the back catalogs of Motown, Verve, Polydor, and Deutsche Grammophon, and apparently it had some trouble digesting the meal: reports of UMG's poor performance in the first two quarters of 1999 sent Seagram's stock plummeting on September 21. That probably influenced UMG's new attitude toward midline pricing more than any institutional desire to finally honor Night Ranger's Greatest Hits with the $17.98 price tag it deserves. But if the strategy works, Time Warner, Sony, BMG, and EMI will undoubtedly reappraise their midlines as well. "It's much like any price increase you see with airlines or any other commodity," says Hoeltje. "If they can get away with it, they'll do it."
Peter Margasak is on vacation.
Art accompanying story in printed newspaper (not available in this archive): illustration/Rebecca Jane Gleason.