CD Price Declines Are Accelerating

Based on the latest information from The NPD Group’s MusicWatch PriceLab, the decline in overall average price for physical full-length CDs appears to be accelerating. CD prices declined nearly four percent in Q1 2004 versus Q1 2003; by comparison, the year over year in Q4 was only 2.5 percent and for Q3 the drop was less than one percent.

The average price of CDs in the U.S. has reached a low of $13.29, versus $13.79 in 2003. A similar pattern was observed for the top 50 sellers in Q1 2004, where the average price was $13.36 nationwide, a drop of 3.1 percent versus year ago.

“There are several reasons for the accelerating decline,” according to Russ Crupnick, president of NPD Music. “First and foremost the recording industry has had to deal with a changing market over the past few years, which was fueled in part by file-sharing. But the retail landscape has also changed, and consumers are increasingly exposed to everyday low prices or terrific discount offers. Everyone also recognizes the increasing competition for entertainment dollars, as DVDs and video games are growing at double digit rates. These situational factors are forcing the industry to rethink pricing.”

PriceLab also reported the following related metrics:

+ The average price of so-called “catalog” CDs, which are comprised of titles that are 18-months old or older, have fallen below the $13 dollar threshold to an average of $12.99 in Q1 2004; however, prices are down on both catalog titles and new releases;

+ Universal Music Group’s titles declined five percent between Q1 2003 and Q1 2004, which may be a reflection of the company’s “Project Jumpstart” initiative to lower prices at retail;

+ On a retail channel basis, prices declined the most at mass merchandisers, which include retailers such as Wal-Mart, Meijer, and Target. Prices at the mass channel fell by five percent between 2003 and 2004

“Record labels are diligently trying to respond to consumer feedback about high CD prices, and to the relative value of music,” Crupnick said. “According to a consumer survey conducted earlier this year, one out of three CD buyers report rank the price of CDs ‘important’ or ‘very important’ in their purchase decision.” — Bob Grossweiner and Jane Cohen