A brief history of the album's recent decline in value

Mired in what will soon be an eight-year downturn, the music business has not only struggled to sell CDs, but has failed to find a consistent price point for new albums. Amazon.com is bringing the cost of an album to new lows, having publicized Tuesday its sale price of $1.99 for a piece of Coldplay's catalog.

Throughout the week, the digital retailer will offer each of Coldplay's prior albums at the $1.99 price point for one day as part of its "daily deals" program. While this writer thinks it's high time that music retailers began heavily discounting the cost of MP3 albums, Apple's iTunes store has set the $9.99 standard, despite the desires of major labels for variable pricing. (Regardless of sound quality and distribution costs, it's an inferior product to a CD, as the consumer must back up the files.)

Time will tell whether the Amazon.com promotions help the retailer chip away at iTunes' market share for digital downloads. Nevertheless, the move represents a bold new price point for the cost of an album, which has been in a state of gradual decline, both digitally and physically.

Less than 10 years ago, it was common for albums to cost $15 and above. Apple helped redefine what the price of an album could be in the minds of consumers, but Steve Jobs' company is far from the only reason that albums are costing less and less.

Let's look at a brief history at the recent decline in the value of the album:

2000: The effect of Napster and the rise of file-sharing on the music business is probably a bit overblown. If one wants to trace the recent woes of the music business to a starting point, 2000 is arguably as good as place as any. It was in 2000 that the Federal Trade Commission declared that consumers had paid about $480 million more than they should have for CDs over the previous three years.

The cause, according to the FTC, was minimum-advertised-pricing, or MAP, policies, which the major labels had adopted to put an end to heavy discounts at music retailers. With MAP in place, retailers that sold CDs below a certain cost, say $12.99, would not receive cooperative advertising funds from record labels (the practice of reimbursing a retailer for advertising costs, such as featuring an album in a Sunday advertisement distributed in newspapers).

With the FTC breathing down its neck, and consumers rightfully fed up at continually seeing $16.98 CDs, the major record labels acquiesced to the FTC, and abolished MAP. A large retailer could now receive funds for advertising a new Madonna album, and then use said Madonna album as a loss-leader, altering what a new album should cost in the minds of the consumer.

2002: Before iTunes even exists, Best Buy warrants a news mention in Billboard for selling the Dixie Chicks' "Home" for $9.99 ... for one full week.

2003: Apple launches the iTunes store, which sets the cost of digital downloads at 99 cents and full albums at $9.99, price points the major labels agreed upon. With Apple refusing to budge from the $9.99 standard, the amount became a fixture for what a new album should cost -- or at least not cost more than.

Additionally, during the 2003 holiday season, Billboard reports that Best Buy sells a handful of new CDs for $7.99.

And finally, the world's latest distributor of music, Universal Music Group, introduces a sales-reduction program it dubs "JumpStart," which lowers the wholesale cost of a CD to about $10 in exchange for guaranteed store space/marketing opportunities.

2004: The $8.99 price point for new, on-sale albums starts to take hold at retail. Billboard's retail expert Ed Christman reports that Target begins selling U2's new effort, "How to Dismantle an Atomic Bomb" (released in November 2004) at $8.99.

But that's just the tip of the iceberg. During 2004's holiday season, mass merchants such as Target sold Nirvana's box set, "With the Lights Out," for $27.98, more than $10 below the wholesale cost. The set, according to Billboard, came with a $59.98 list.

2006: Heavy loss-leading at mass merchants would no longer just affect major releases on the level of a Justin Timberlake.

In early 2006, Best Buy raises the ire of independent retail community when it places about 20 titles, including releases from the Arcade Fire, Antony & the Johnsons, Broken Social Scene and Atmosphere on sale for $7.99, $2 below cost. The promotion became news when Patrick Monaghan, who runs small label/distributor Carrot Top Records in Chicago, wrote a letter to the participating labels and discussed the sale online.

In one sense, the promotion recognized the growing mainstream importance of the independent sector. But by selling the albums at $7.99, the major retailers reinforced the belief that CDs were overpriced. Independent retailers who couldn't afford to take a $2 loss per CD were hit the hardest by such deals, and the success that stores such as Best Buy have had at moving into the independent sector have certainly done more to destroy the mom-and-pop outlets than any amount of file-sharing.

October 2007: Radiohead releases its latest album, "In Rainbows," online, telling fans they can pay what they want, or pay nothing at all.

February: Online retailer Amie Street secures top-shelf indie artists such as Cat Power and the New Pornographers for download. Albums cost nothing to start, and increase based on fan demand. Not yet having secured a copy, I legally download the National's "Boxer" for free.

March: Nine Inch Nails follows Radiohead with a tiered pricing structure, allowing fans to download its new album, "Ghosts I-IV," for as low as $5, or as much as $300. A few months later, NIN releases new album, "The Slip," to the Web for free.

Also in March, Billboard breaks the news of Wal-Mart's plans to introduce a new tiered pricing plan for CDs, which would see catalog titles selling for as low as $5.

June: Amazon.com says it's selling Coldplay's past albums for $1.99 for a limited time, and has already discounted Madonna's recent "Hard Candy" to $3.99.

Screenshot courtesy Amazon.com

Comments

[Lauren]

The sad thing about the big chains driving the small shops out of business is that they not only offer a much smaller selection of titles, but they keep cutting back on space for cds. If it keeps up there won't be anywhere to go and buy indie music by bands that don't compete with the big labels.

[Barry]

I agree with every word.

BTW - there is a big event coming up with Eddie Kramer, legendary producer/engineer of
Jimi Hendrix, Led Zeppelin, the Beatles, the Rolling Stones, Kiss, David Bowie, and many more, for a special event celebrating Waves Studio Classics Collection and will be held at Guitar Center West LA on June 30!!!

[Mitch]

iTunes existed in 2001. Your 2002 comment is incorrect.