CD Pricing in the Recorded Music Industry
EMI music group was formed in 1931 when Gramophone Company merges with Columbia Graphophone to form Electric and Musical Industries (EMI 2007). EMI started with operations in nineteen countries and has eventually grown to operations in over fifty countries. EMI has the rights to over one musical composition. Of the five major music companies, EMI has the least market share in the Unites States. This market share may now be in jeopardy as Universal Records has decided to decrease the price of its CD's in an effort to generate sales. EMI must determine what they would gain or lose by dropping or not dropping their retail price for CD's and the price charged to retailers.
The recording industry is highly competitive with its profits based in its ability to attract and retain artist who sell hit records. Advertising, promotion and publicity for its artist are central elements in a music company's marketing program and they represent a sizeable amount of the company's costs. Universal has more market share because it has more hit artist and a larger music catalog than any other music recording company. Because of these facts, Universal is susceptible to the most losses. Universal made the decision to slash its CD prices in the US by up to 31.5 percent in the US, not to increase market share but to persuade consumers to start buying CD's again (Universal, 2003). Since the advent of new technology allowing consumers to obtain music in non-traditional means, actual CD sales in the US had been on a decline since 2000 (Kerin, 2007). In fact, four of the major five record companies reported losses in the first half of 2003. Universal is considered a heavy hitter US with a market share of 29.4% while EMI ranks in the bottom of the five major record labels with a mere 9.8% of US market share. EMI was the only company that did not report losses the beginning of 2003 due to major reorganization efforts.
Existing Marketing Problems
EMI's major problem is lack of market share in the US. Upon first glance one would think that the major problem that EMI is faced with in its US market is the possibility of a decrease in its CD sales caused by the decrease in CD price by Universal Music Group. It is acknowledged that the decrease in price by Universal will affect EMI but Universal's price cuts are not the only or main problem EMI is faced with. EMI faces several problems within the US and Universal Music Group's price decrease is only one of them. The problem that EMI is faced with is not that Universal CD price slashing will decrease its market share. The main problem is that EMI does not have enough US market share to begin with. Even if EMI decreases the sales price for their CD's to compete with Universal Records, this won't necessarily increase their market share of hit recording artist.
It should be mentioned that CD sales are not expected to increase any time soon. As someone who grew up during the development of file sharing, the majority of the suggestions given in this analysis are based off observations and reactions, or lack thereof of the Universal announcement. Universal's 2003 announcement was met with criticism and indifference from the group of consumers who were once the largest buyers of music, young people and they made there indifference know throughout the internet community. As Ashlee Vance put it "Two decades and four presidents is a long time to wait for a single price cut on what became a mass market good" (Vance, 2003). Universal is decreasing the price on its CD for all artists but superstar artists CD's are being reduced by a smaller amount. Universal also incorporated a new retail sales plan called Jump Start. Retailers pay wholesale prices for CD's (this is the price that will be decreased) but receive additional compensation for advertising support and CD placement. Under the new plan...