The economic climate has forced music stores across the US to shutdown but online outlets have continued to thrive. Not burdened the same hefty overhead costs that negatively affect physical chains, digital retailers remain locked in heated competition to control market share, and the most popular tactics to achieve that goal are price cuts.
However, although these price slashes greatly benefit consumers and retailers, what impact does it really have on the industry? This isn’t a discussion about retail vs wholesale revenue spikes or the importance of opportunity costs – my GCE Economics teacher would be so proud – it’s a breakdown of how price wars have a long term effect on music history.
To kickoff our little analysis, let’s develop an understanding of the real culprit behind price cuts: retailers. It’s common practice for ignorant bloggers and bitter fans to blame record labels for the actions of digital retailers, such as Amazon and iTunes, who routinely offer hot ticket music releases on sale. Yet, the companies and distributers – the wholesalers in an microeconomic sense – are not at fault. At least, not this time.
When Amazon drops the price of an album to $3.99 for a startling 7 days, that is not done under the directive of a record company; it’s just basic competition. It’s no secret that the iTunes integrated platform has been the bane of Amazon’s existence during the last decade and as the former continues to secure an ever-expanding chunk of the online market share, Amazon regularly docks the prices of the available products in a bid to compete.
“Everything in this life comes with a cost and the longterm effects of these competitive practices are impossible to ignore.”
At this point, you’re probably asking yourself, “what’s the big deal? I love cheap music!” Yes, the only thing that comes close to the sweet nectar of free MP3’s the once rained from Limewire heaven are low-priced, high quality releases that are completely legal. Still, everything in this life comes with a cost and the longterm effects of these competitive practices are impossible to ignore.
This week, Bruno Mars earned his first #1 album on the Billboard 200 as his Unorthodox Jukebox was made available via Amazon for just $1.99 over a 24-hour period and then $3.99 for an entire week. The album sold 96K copies, of which 46K were sold via Amazon. In other words, if the sales weren’t bolstered by the timely sale, the record would have probably sold little more than the 48K it moved in the previous week.
Of course, Mars isn’t the only artist whose music has been sold for a much cheaper price. Lady Gaga and Rihanna have repeatedly seen their sales surge following slashes by Amazon. Personally, I sense that the latter’s material should never be sold for more than 99c since most of her albums are really just collections of ringtones but hey,who cares about what I think?
The root of the problem rears it’s ugly head only when we consider the fact that the history books and even your favourite artist’s press releases never mention these price cuts. Think about: you’ve never seen Beyonce’s label boast about her record sales with a footnote stating, “30% of the 3 million I Am…Sasha Fierce album sales were accumulated thanks to Amazon selling the discs for $3.99 with a Popeye’s two-piece and a side of coleslaw during the weeks of __ and __.”
Imagine the dismay of serious music fans when they hear an artist talk about selling millions of albums when they know that the majority of those sales were achieved as a result of of price cuts and not just because the material was that good. Their anguish is only intensified when those numbers are compared to acts who didn’t benefit from Amazon’s desperation before the dawn of the Digital Age. For instance, when parallels are drawn between the sales of Adele and Carole King or Katy Perry and Cyndi Lauper.
Quite simply, sales garnered by price cuts appear unfair to many people and their feelings are justified from a theoretical perspective. On the other hand, from a business stance, such notions seem rather petty because as any retailer would explain, it’s all fair competition and if consumers don’t want the music then it will remain on the shelves. Honestly, if the incentive of a price dock was so powerful then Rihanna’s album sales would match those of her singles.
So, now you understand exactly why price slashes are used, the culprits and the not so hidden effects on the music industry. Don’t expect price cuts to be halted in the near future, though, because with digital revenue on the rise and online market share of all music sales accounting for a third of the global total, it would be silly for any company to stop. Remember, this is the music industry, not the magical land of fairies that exists in Mariah Carey’s mind.
Photo by Christopher Polk/Getty Images North America