CD Prices Drop

While Universal's heavily publicized attempt at CD price reduction didn't pan out as hoped last year, there is evidence to suggest that CD prices may be slowly moving downward.

The NPD Group is reporting that the average price of CDs in the US has now reached a low of $13.29, versus $13.79 in 2003. The researchers say that a similar pattern was observed for the top 50 sellers in the early part of 2004, when the average price was $13.36 nationwide, a drop of 3.1% versus a year earlier.

NPD says it is also finding that the decline in overall average price for physical full-length CDs appears to be accelerating. The numbers suggest that CD prices declined only 1% between 2002 and 2003, and then 2.5% between the end of 2002 and 2003. This trend continued with a nearly 4% price drop in first part of 2004, versus the same time period in 2003.

NPD's Russ Crupnick says there are several reasons for the accelerating decline: "First and foremost, the recording industry has had to deal with a changing market over the past few years, which was fueled in part by file sharing. But the retail landscape has also changed, and consumers are increasingly exposed to everyday low prices or terrific discount offers. Everyone also recognizes the increasing competition for entertainment dollars, as DVDs and video games are growing at double-digit rates. These situational factors are causing the industry to rethink pricing."

Not surprisingly, most of the downward price movement was found at mass merchandisers, which include retailers such as Wal-Mart, the Midwest-based Meijer chain, and Target. NPD says that prices in the mass channel fell by 5% between 2003 and 2004. Price drops are also affecting "catalog" CDs, which are generally considered to be titles that are 18 months old or older. NPD notes that the average price for catalog discs has fallen below the $13 dollar threshold to an average of $12.99 in the first quarter of 2004.

In spite of the lack of support for Universal's "Project Jumpstart" initiative started nine months ago (with a target of 30% price reductions), the NPD numbers reveal that overall prices of the company's discs did decline 5% between the first part of 2003 and the beginning of 2004.

Crupnick concludes that "record labels are diligently trying to respond to consumer feedback about high CD prices, and to the relative value of music. According to a consumer survey conducted earlier this year, one out of three CD buyers reports ranking the price of CDs as 'important' or 'very important' in their purchase decision."