By Tom Ryan
Wal-Mart Stores Inc. is reportedly proposing a new, lower price structure for CDs as a way to shore up lagging sales. The move comes as digital music downloads - paid and unpaid - continue to rise.
According to Billboard magazine, the Wal-Mart proposal calls for a promotional program that could comprise the top 15 to 20 hottest titles, each at $10. The rest of the pricing structure, according to music executives who spoke with Billboard, would have hits and current titles retailing for $12, top catalog at $9, midline catalog at $7 and budget product at $5. The move would also shift the store's pricing from its $9.88 and $13.88 model to rounder sales prices.
Wal-Mart divisional merchandise manager for home entertainment Jeff Maas referenced the DVD business as a model for tiered pricing. "(It) has been around for years and has worked very well," he said.
But the Wal-Mart proposal was presented only as a starting point to fix an ailing category.
"When you look at sales declines with physical product, and you have a category declining like it is, you have to make decisions about what the future looks like," Mr. Maas told Billboard. "If you have a business that is declining and you want to turn it around, it really takes looking at it from all angles."
Indeed, the plan has to win approval of the major record labels. Speaking off the record to Billboard, some music execs outright rejected the idea, others said further negotiations might yield a workable solution, and a few saw the proposal as appropriate given the category's problems.
"I don't think this is a Wal-Mart discussion," one top executive at a major label said. "I think this is a future-of-the-business discussion. Right now everyone is paralyzed."
Another top executive said, "The decision might come down to: Do we give up 20 percent of our business (i.e., Wal-Mart) in order to not lose the entire business?"
Some music execs speculated that Wal-Mart might pull music entirely from the store if a solution isn't found.
Discussion Questions: What do you think of a lower-priced/tiered model as a solution to improve music sales at retail? Secondly, do you think general merchandisers should dramatically reduce or exit the music category?