Universal Music Group Drops MSRP On CDs To $12.98

Universal Music shook the industry yesterday when they announced their plans to lower the wholesale price of their CDs. Starting in the fourth quarter, the price will drop from $12.02 to $9.09 on all of their titles, while lowering the Manufacturer Suggested Retail Price to $12.98. This, according to Universal Music Group Chariman and CEO Doug Morris, will make it so that ìmost retailers will be able to
offer our music for less than $10.00, if they so
choose.î Thatís one hell of a profit margin for those shops! But this change is a good one, as CDs were highly overpriced as it was. The entire letter follows below, if youíre in a reading kinda mood. My favorite part equates P2P users with kiddie porn.

Dear Colleagues:

Today we are making a major announcement which we
wanted you to hear about directly from us. We have
made a decision to significantly reduce
our CD prices in the U.S. starting in the 4th quarter.
On virtually all top line CDs, we will lower the
wholesale price from $12.02 to $9.09,
with a Manufacturer Suggested Retail Price of $12.98 (eliminating the $16.98, $17.98 and $18.98 equivalent MSRPs). With this new pricing
model, we believe that most retailers will be able to
offer our music for less than $10.00, if they so

This is an aggressive move - but the state of the
business calls for bold actions. The stores and
consumers have been telling us that CD prices
are too high. Because many music fans are getting
music for free through online piracy, we believe that
we need to lower prices to be more
competitive with the illegal market. We are also vying
for consumer dollars and shelf space with more and
more forms of entertainment media. Our new policy will
enable music to be offered at a much more appealing
price point in comparison to these other entertainment products.

As part of this initiative, we are also planning to significantly increase spending on direct-to-consumer advertising that will greatly raise awareness of our artists and their music as well as highlight our new, everyday low prices. We are confident this will help drive fans back to the stores and increase our overall sales.

If this new pricing initiative is to succeed, we will
need a meaningful increase in our sales to offset the
reduction in our wholesale prices. All of our research indicates that these new, everyday low prices can lead to dramatic increases in sales at retail. Since UMG is responsible for more than one out of every four albums sold in the U.S., we are uniquely positioned to implement this new strategy. Our size affords us the critical mass to really give this a chance and, hopefully, reinvigorate the retail business.

At the same time, we are ramping up our efforts to
counter the illegal distribution of our music on P2P
services. The technical countermeasures we are using
to frustrate the P2P experience are working. The
dangers of P2P services - including viruses and
privacy issues - are being revealed as never before.
This month, the Judiciary Committee of the US Senate
will hold hearings alerting the public to the
uncontrolled dissemination of pornography through P2P
services. Oftentimes, a search by the name of a
recording artist is the vehicle that leads
unsuspecting music fans to pornographic images,
including child pornography.

Additionally, in the weeks to come, the industry will
begin its lawsuits against P2P users who are illegally distributing our music online. These suits will supplement the educational campaign we launched over a year ago. They will send a strong message that it is illegal to distribute our music online without authorization. And they will make it very clear that those who engage in these activities face serious legal and financial repercussions. The lawsuits, together with the educational campaign and the public awareness of the dangers of P2P use, will lead many to explore purchasing music legitimately again - both online and at retail. Reducing our prices at retail now will underscore that music is a great entertainment value.

And, of course, at the same time, UMG is aggressively
making its music available online through an
ever-increasing number of legitimate services. We
continue to be the most innovative in our offerings
and have priced our music so that online retailers can
sell it for as low as .99 a track and $9.99 per album.

UMG has consistently re-written the way business is
done in the music industry. We have broken all records
and set the bar for what a music company can
accomplish. We are once again making a bold step with
this move. The willingness to take a chance is what
makes our company's culture so special.

Universal Music Group Drops MSRP On CDs To $12.98