Retailers, many of them angry over details of the plan that may hurt their profit margins, are instituting the price changes slowly and unevenly. A result is a patchwork of prices, ranging from less than $10 to nearly $16, on new Universal CD’s from artists like Ludacris and Edie Brickell. At least one major retailer, Virgin Megastore, has refused to comply with the plan that lowers the wholesale price and eliminates promotional subsidies, selling new Universal CD’s like Ludacris’s “Chicken & Beer” for $15.99. Others, like the HMV chain, have clambered on board, selling “Chicken & Beer” and other Universal titles for the new suggested list price of less than $13. Other deep discounters, including Wal-Mart and Best Buy, have stuck near their customary prices of just under $10
Apparently the stores that remain with high prices are independent stores that don’t buy directly from Universal. Here’s some bad news.
The promotional subsidies have played an especially crucial role in enticing stores to stock and push untested new artists. Because of the end of the subsidies, retailers said, the stores most severely squeezed by the plan are independents and specialized chains like Virgin and Tower Records, which sell more CD’s from new artists than Wal-Mart or Best Buy. And some retailers have said that, without the payments, they will be less eager to stock and push new artists on Universal labels.
“There has been a bit of a backlash,” said Jerry Hart, vice president for retail at CMJ Music, which tracks new artists, “but I would say there are more retailers who have embraced it because they are selling incredible volume on Universal product.”
And to finish it off.
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Universal has pledged to make up for the loss of promotional subsidies to stores by spending some of that money on advertising. But that advertising will also increase the pressure on stores to lower prices. “That is when it really gets interesting,” Mr. Urie said.
For now, however, Universal’s list price remains merely a suggestion, and that is how retailers are taking it. Govindan Kartha, owner of New World Records in Buffalo, said he tried to sell Universal Music’s CD’s for the $13 list price, but quickly raised his prices to about $14. He said he pays a middleman instead of buying directly from Universal, increasing his cost to over $10 a CD.