The Price of CD’s.

The Price of CD’s

Many people believe that CD’s are overpriced, but to look at the breakdown in the costs that are involved in producing a CD, the end price at which the CD will be sold to consumers can sometimes be justified.

So what are the prices that are involved in producing a CD? Well the record company has to cover all costs not just those involved in the direct manufacturing. These include, the artist advance, the recording costs, the cost of the artists’ promotional video’s, the marketing of the artist and the CD (including press and PR), tour support and remixes. Although some of these costs are recoupable from the artist, in order for the record company to break-even and make profit, the CD’s have to incorporate all of these costs.

The record company will then sell the CD to the retailer at the set price that will include all of these costs. To determine the price at which the CD will be sold to consumers, the retailer has to take into account VAT (which will go straight to the government), discounts and their own mark-up price (this is in order for the retailer to make profit).

There are still many arguments over whether CD prices are too high or too low. Twenty-eight states in the US filed suits against the five biggest record companies and two music retailing giants, accusing ...

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When issues such as this are raised, it leaves the consumers to wonder whether the CD’s are sold at a certain price to include all of the record company’s and the retailers costs, or is it that the costs are not as expensive as they make out and they are in fact marking up their prices by a hefty sum to exploit the consumers in order for the companies involved to make excess profit.

Piracy is a growing concern for the music industry. Record companies have witnessed a vast drop in their profits due to the downloading of music from the Internet, peer-to-peer file swapping and organised piracy (piracy on a mass produced scale). EMI seems to be having the biggest problems because it is the only major that is a stand alone record company, meaning that making profit from the company relies solely on the CD sales of the artist’s on the label. Other majors are only a small part of a bigger company e.g. Vivendi Universal is part of a water company, so even though their profits may be decreasing in the music section of the company, they have other section (businesses) to rely on for profit.

It can be said that the record companies are not selling their CD’s at high enough prices in order to make substantial profit, and in many circumstances, any profit at all. Nielsen Media Research shows that CD sales fell by 13%, in the US, from 2001 to 2002. CD sales worldwide have fallen by 14% in the last two years. Share prices in the record companies are also falling. EMI saw their share price halved from £4 in September 2001 to £2 in September 2002. (The EMI Group, 2002)

In an effort to get consumers back into the record stores, the music industry is trying an array of new sales strategies. Some new releases can be found for just under $10, while new or "developing artists" can be found for between $6.99 and $13.99. This is in addition to sales, rebates and other methods to lure the consumer back. (Blubster Music Community, 2001)