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Wal-Mart may be helping drive down the price of CDs to under $10.
In the past decade, Wal-Mart has quietly emerged as the nation's biggest record store. Wal-Mart now sells an estimated one out of every five major-label albums. It has so much power, industry insiders say, that what it chooses to stock can basically determine what becomes a hit. "If you don't have a Wal-Mart account, you probably won't have a major pop artist," says one label executive.
Along with other giant retailers such as Best Buy and Target, Wal-Mart willingly loses money selling CDs for less than $10 (they buy most hit CDs from distributors for around $12). These companies use bargain CDs to lure consumers to the store, hoping they might also grab a boombox or a DVD player while checking out the music deals.
Less-expensive CDs are something consumers have been demanding for years. But here's the hitch: Wal-Mart is tired of losing money on cheap CDs. It wants to keep selling them for less than $10 -- $9.72, to be exact -- but it wants the record industry to lower the prices at which it purchases them. Last winter, Wal-Mart asked the industry to supply it with choice albums -- from new releases from alternative rockers the Killers to perennial classics such as Beatles 1 -- at favorable prices. According to music-industry sources, Wal-Mart executives hinted that they could reduce Wal-Mart's CD stock and replace it with more lucrative DVDs and video games.
"This wasn't framed as a gentle negotiation," says one label rep. "It's a line in the sand -- you don't do this, then the threat is this." (Wal-Mart denies these claims.) As a result, all of the major labels agreed to supply some popular albums to Wal-Mart's $9.72 program. "We're in such a competitive world, and you can't reach consumers if you're not in Wal-Mart," admits another label executive.
I don't know if I like the idea of Wal-Mart using it's de facto monopoly position to arbitrarily set prices to it's own liking, but they didn't particularly ask me for my opinion.
Another piece of fall out from this decision will be the increased death of independent music stores. Having seen the impact that Wal-Mart has on independent and small businesses, I can only conclude that the same thing is nearly inevitable for indie music stores. Unless they differentiate themselves into niche marketers, Wal-Mart will run them out of business.
Posted by Casper at October 13, 2004 04:17 PM