Industry Endorses CD Price Cut; ‘Superstars’ Excepted

Record retailers who have been been calling on manufacturers to lower prices on new compact disc releases got half of what they wanted at the 30th annual National Assn. of Recording Merchandisers convention held over the weekend at the Century Plaza Hotel.

CBS Records, the industry’s largest manufacturer, announced that next month it will join other labels in lowering CD prices on most new releases. But the company said it will not drop prices--from the current suggested retail level of $17.98--on hot “superstar” product.

Al Teller, president of the CBS Records Division, acknowledged that the growth rates of both CD hardware and software have slowed, but he branded any across-the-board reduction in CD prices as “dangerous.”

“Manufacturers’ profit margins would be badly squeezed, resulting in lower marketing and advertising support, lower tour support, and worst of all, fewer and more conservative artist signings,” Teller said in the weekend’s keynote address to the 2,400 convention registrants.

Where CBS until now has sold all its new CD releases at a single price, Teller outlined a multitiered pricing approach similar to what other record companies have adopted.

Under the plan, new and other “developing” artists will be released at a $12.98 list, while most other veteran or “established” pop, soul, country and jazz artists will be targeted at a $14.98 list. Only “superstar” product will continue at the top price level. While some retailers will sell the CDs at these suggested rates, most offer discounts.

Mitch Perliss, director of purchasing for the California-based Music Plus chain, was pleased with the price cut. In an interview Sunday, he described the CBS action as “just what the merchandisers needed.”

But Perliss added that the big question will be how CBS chooses to define “superstar.” If the top price is applied just to its truly powerhouse acts, he feels the plan will help spark sales, but if it is applied to any act that has had, say, a gold album, it would be much less meaningful.

The importance of price in connection with CD purchases was one of the main points of a convention address Sunday by Anna Ungar Fogelman, who analyzed an association survey of 8,087 consumers in 421 retail locations across the country.

When shoppers who own CD players were asked what factor would influence them to buy more CD albums, Fogelman said, 72% answered by saying lower prices.

In his keynote speech Saturday, Teller said he feels there’s still plenty of demand among consumers for the traditional vinyl album, but said he was less optimistic about the future of vinyl singles, sales of which have fallen off radically in recent years.

“The challenge facing us today is finding a worthy successor to the 45,” he said, noting that CBS will soon enter the cassette single market. The label had been one of the industry’s few holdouts in that area.

But he quickly added that the long-term answer to the singles question may be the recently emerging 3-inch CD, which carries a suggested price of $3.49. “That could very well be the lightning bolt we need to electrify the singles buyer,” he said.

In a separate speech, Norio Ohga, president of the Sony Corp.--which last year purchased CBS Records for $2 billion--said the 3-inch CD single can hold up to 20 minutes of music and is compatible with existing CD players through the use of a simple adapter. Of the new configuration, he said: “It will put digital audio within reach of the young. It’s the perfect way to expand the CD marketplace.”

Ohga also demonstrated the new Sony Pocket Discman, a portable CD player which can be held in the palm of the hand. The player, which can play both regular CDs and 3-inch CD singles, weighs less than 11 ounces.

That wasn’t the only technological innovation demonstrated at the convention. Stan Cornyn, president of Warner New Media, showed off the new CDG--CD Plus Graphics. This is a regular CD with graphics encoded in the disc. The new CD by the rock group Talking Heads, due next week, will be the first release to contain this feature, with 50 additional releases slated in this format during 1988 by such acts as Anita Baker and Simply Red.

Cornyn said the software will cost no more than regular CDs and can be played on regular CD players. But to decode the graphics--which can be seen on a video monitor or a TV screen--a special CD player is needed. Cornyn said JVC will begin selling such a player this summer, which within a year will retail for $399.

The mood at this year’s convention was harmonious, a reflection of the record-setting grosses registered throughout the industry last year. Also, there are few contentious issues to drive a wedge between retailers and manufacturers.

Things weren’t always this way, as Teller pointed out in his keynote.

“Since 1958, we’ve lived through piracy, counterfeiting, blank tape, quadraphonic sound, video games, the disco boom, the disco bust, profitless prosperity and numerous other tests of nerve and skill.”

Now, the controversial issue of digital audio tape notwithstanding, the outlook is brighter.

“Our business is strong,” Teller summarized. “Sales are up, profits are up and we’re breaking more new artists faster than ever before.”