Wal-Mart Plays Hardball on CD Prices

from the everyday-low-prices dept

Wed, Mar 26th 2008 2:45pm — Timothy Lee

Please note the update at the end concerning the timing of this story. Good news for consumers: Rolling Stone is reporting that Wal-Mart is using its considerable negotiating power to demand lower CD prices from the recording industry. Wal-Mart and other retail stores have been using CDs as a loss leader to get customers in the door sell higher-priced merchandise. Now the retail giant has issued an ultimatum: give us CDs for less than ten bucks or Wal-Mart we'll sell DVDs and video games on those shelves instead. It seems unlikely the labels have much leverage here. The CD market is steadily shrinking, and will probably disappear entirely within the next decade, so Wal-Mart has relatively little to lose if it cuts the space it allocates to recorded music. Of course, the labels' bargaining position might not be so weak if they hadn't spent the last decade trying to kill online business models that might have given them alternative revenue sources. On the other hand, the labels could be pleasantly surprised by the result of these price cuts. Demand for music is likely to be pretty elastic, so even if they're earning less per sale, some of that might be made up through greater volume. Update by Mike: As noted in the comments, it turns out this story is from a few years ago. I'm guessing Tim found it on Slashdot, which made a similar mistake. Either way, I, personally apologize for letting this through and will be more careful in the future. That said, I think Tim's analysis is sound, even if the original effort is from a few years ago. The fact that the situation has only gotten that much worse over the past four years shows how little the record labels have been able to come to terms with what's going on out there in the marketplace.

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Filed Under: cd prices, loss leaders, music
Companies: wal-mart

32 Comments

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Scote, 26 Mar 2008 @ 3:13pm

I'm torn. I don't know who to root for since both entities are evil. I guess I'll have to go with Walmart on this one and hope for their worst nightmare: unionized workers (they can and will shut down entire stores rather than let a single union in).
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- Vincent Clement, 26 Mar 2008 @ 3:34pm
  
  Re:
  Yes, hope for unionized workers so Wal-Mart can raise their prices and make it more expensive for people to shop. How considerate of you. Low income families will be thankful for the additional costs.
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  - Reverse Logic, 26 Mar 2008 @ 4:03pm
    
    Re: Re:
    Couldn't you argue that Wal-Mart using this exact tactic to buy tv's from the 3rd world ( directly leading to the outsourcing of factory jobs ) is what has helped create the Low income families that shop there.
    
    Just a thought.
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    - LBD, 26 Mar 2008 @ 4:12pm
      
      Re: Re: Re:
      Unions are a good thing when they are not corrupt... They are a bad thing when they are corrupt.
      
      Walmart is a good thing in that they offer low prices. They're a bad thing in how they treat their employees.
      
      The current lack of manufacturing in the USA is probably not Walmart's fault, but the fault of the government in not paying for people's health care... Workers are more expensive for companies in America then anywhere else, if the company provides health care. Almost everywhere else companies don't have to shell out money for health insurance for their employees... the employees just get it automatically. There are other things causing employing people here to be expensive also, which is why there are so few jobs. The solution is to make hiring people cheaper, while still making sure wages are living.
      
      Kay, now I sound like a nut. Sorry.
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      - tubes, 27 Mar 2008 @ 5:19am
        
        Re: Re: Re: Re:
        The loss of manufacturing jobs isn't directly Walmart's problem but they are one of the main reasons. They are such a large retail outlet that if you want to be on their shelves they demand the price that the manufacturers have to stick by (as stated in this article) which directly leads to outsourcing. If the business wants to continue making the money they are making.
        
        And another point just because Walmart offers cheaper prices doesn't mean it is the same product you are getting from somewhere else. A lot of companies make a cheaper, throw-away type of product just for Walmart stores. Thats the main reason I won't shop there if I'm spending money on a product such as tv or any other type of electronic toy, lawnmowers, washer & dryer, or other appliances. I don't want to re-purchase the same thing in the next year or two. I'll pay a couple more bucks for quality. Most of the time I can find a better price online anyways.
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  - Rusty Shackleford, 26 Mar 2008 @ 5:00pm
    
    Re: Re:
    Walmart is the biggest retailer in the world... But yet where I live you can get a better wage at the coffee shop down the street... Just try and say the coffee shop is getting higher revenues than the Walmart who has a board up showing their sales per hour... Complaining that costs to the consumer will go up if Walmart is unionized is just stupid...as they are actually part of the "Low Income" families you are talking about... Walmart says it is a family company... yea... Sam Waltons family... Walmart deserves to have unions in place... In Canada, Full time Walmart employees make less than the part time ones do... Not to mention what they have done to small business all over the place... and I would like to see what happens if Walmart gets the costs for the CD's reduced... will it reflect back to the consumer... or does it just give Walmart a higer revenue from the sale... Just because they are the only one getting the reduced cost while the rest of the outlets are stuck selling at a higher price just because they have to.
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- Anonymous Coward, 26 Mar 2008 @ 4:58pm
  
  Re:
  yeah...unions have long out lived their usefulness.
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Anonymous Coward, 26 Mar 2008 @ 3:21pm

3.5 year old article
The Rolling Stone artical that this links to was posted October 12, 2004.

That's 3.5 years ago. Thanks for the amazingly outdated "expert insight".
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- ehrichweiss, 26 Mar 2008 @ 4:20pm
  
  Re: 3.5 year old article
  Yep, this was a dupe on Slashdot. Maybe you need to read the *comments* on /. , Mike, they revealed this pretty quickly.
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  - Anonymous Coward, 26 Mar 2008 @ 4:22pm
    
    Re: Re: 3.5 year old article
    It was Tim(othy), not Mike
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- Anonymous Coward, 26 Mar 2008 @ 4:27pm
  
  Come on Tim!!
  I like Tim's stories. However this is the SECOND time (I am aware of) that Tim has written an article about a subject well over a year old.
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  - Tim Lee, 26 Mar 2008 @ 6:25pm
    
    Re: Come on Tim!!
    Sorry guys. I should have double-checked the date on the story more carefully.
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Griper, 26 Mar 2008 @ 3:44pm

You think the labels will realize the error of their ways and act accordingly?
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Derek, 26 Mar 2008 @ 3:45pm

CD prices drop = less money for the artist
Honestly, who do you think this price cut hurts? The labels are just going to start cutting the rate that the artist gets and increasing their share of the pie to bring profits back up to where they want them. The reform needs to be done by the labels. Most artists can not fight back against the artist cutting rates because without them they have no distribution channels, so life sucks all around.
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- LBD, 26 Mar 2008 @ 4:06pm
  
  Re: CD prices drop = less money for the artist
  They already get very little pie... and they now have alternate channels (internet)
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BlowURmindBowel, 26 Mar 2008 @ 3:46pm

HAHAHAHAHAHA....
If Wal-Mart paid a fair wage there would only be half as many low income families in the country...

No but seriously, if you think a single company having the market cornered on "the cheapest crap" is a good thing for our country then you are clearly a more blissful idiot than I can justify being. If you buy anything at Wal-Mart aside from consumables (food, paper towels, trash bags, etc.) you are wasting money, Wal-Mart doesn't sell a single damn durable good, you'd be far better of to spend twice the $ per durable item and actually get an example of that item that would last more than three months.

As far as I'm concerned for all their disposable crap, Wal-Mart is a disposable store, I can't wait to throw them away.

And Vincent, you are an ASSHAT!
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- Anonymous Coward, 26 Mar 2008 @ 4:14pm
  
  Re: HAHAHAHAHAHA....
  Disposable crap is not walmart's fault. It's the fault of the current consumerist culture. That and people proudly admitting that they think spending more money now, to save more money later, is a good thing.
  
  Dumbasses.
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James (profile), 26 Mar 2008 @ 3:55pm

Hehe
We sell each unitbelow cost but we make up for it in volume!!
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XXX, 26 Mar 2008 @ 4:06pm

I'll go with the lesser of the two evils: Walmart by a nose.
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Anonymous Coward, 26 Mar 2008 @ 4:24pm

Speaking of Wal-Mart
http://www.cnn.com/2008/US/03/25/walmart.insurance.battle/index.html
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- Rusty Shackleford, 26 Mar 2008 @ 5:16pm
  
  Re: Speaking of Wal-Mart
  Anonymous.... Perfect example of Walmart greed... I believe everyone need to go to this site and read what is there... it is amazing what Walmart will do to make a buck
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Freedom, 26 Mar 2008 @ 4:42pm

Lower Prices on Movies, Higher Prices on CDs...
Kill the CD space!!! Open up the shelves for more DVD/BR space and lower the price on movies. Heck, even the old timmers are starting to buy music as MP3s, etc. As more music gets unDRM'd by legit sources, the CD market will end up being a niche market at best for those that don't want MP3s, want RAW "quality", and so on.

Freedom
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cbc, 26 Mar 2008 @ 5:19pm

1.) WMT wants $10 cd's from article 3.5 years old? Completely agree with AC above. This post is totally irrelevant.

2.) The anti-WMT commentary is comical. A ten minute lesson in microeconomics would be useful for 90% of commentators:

http://en.wikipedia.org/wiki/Microeconomics

I can't think of a single company that has more greatly increased the standard of living of average US family.

Ever wondered why even poorest families can afford multiple tv's as opposed to how expensive they were before WMT started pushing consumer electronics? Why cost of cashing checks for the un-banked has fallen from 3% to $3.00? Why generic prescription drugs are now available for $5.00 vs. $50.00?

(No tie whatsoever to WMT, btw)
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John (profile), 26 Mar 2008 @ 5:29pm

Two points
First, like the above-posters said, what does an article from 2004 in Rolling Stone have to do with anything *now*?
Did Wal-Mart get its $10 CD's in 2004 or are they still putting pressure on the recording industry?

Second, to all the Wal-Mart bashers: think about this: no one forced people to shop there. Yes, it may be more convenient and they may have lower prices, but for all the complaining that "they putting mom & pop stores out of business", I don't see anyone rushing to keep shopping in mom & pop stores.

If mom & pop stores were so important, then why aren't customers seeing their benefits instead of just looking at the lowest price? What about expert service? What about a knowledge of the community (something Wal-Mart probably doesn't have)? What about having your issue dealt with by the owner of the business rather than a manager of a store, who may have no authority to really help you?
Nope: all that seems to matter is the lowest price.
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Peter, 26 Mar 2008 @ 5:35pm

How Many Years left?
As the article was written 3.5 years ago, and it predicted that CDs will be off the shelves in 10 years, does that mean that in 6.5 years there will be no more CDs????
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SilverWolf, 26 Mar 2008 @ 10:50pm

Oldie but goodie
Well, I for one am curious how the story turned out. Does anyone know if Walmart got what they wanted ?
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RS, 27 Mar 2008 @ 12:17am

NOT OLD
The linked article is '04, but in the NEW April 3 '08 issue they have a similar article. Its still relevant, check a newsstand for Chris Rock's ugly mug and open to page 16. "Wal-Mart Demands CD-Price Cut", in big bold letters above a full page article. I'd wager the date on the site was screwed up, or Wal-Mart has made a renewed demand, cause I doubt RS didn't know they already did this. And the article states prices below $10, so I'm guessing this is a new ultimatum.
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- GS, 27 Mar 2008 @ 5:02am
  
  Re: NOT OLD
  Agreed - I read this last night (old fashioned paper copy), and in the article they explicitly mention that Walmart tried this in the past and failed. The author felt that Walmart has better chances this time around.
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Twinrova, 27 Mar 2008 @ 3:57am

Okay, so the article's old....
... question is, did it work?

I do tend to see quite a few $9.99 CDs at Walmart, but not sure how old they are.

I don't buy CDs.
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Rusty Shackleford, 27 Mar 2008 @ 4:51pm

Ever see the inside of a walmart Computer?
Its a fine example of what you get when you buy from walmart.... the thing has barely got the spec to run... at least there is tons of room inside...
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Clueby4, 27 Mar 2008 @ 4:54pm

IIRC wasn't this already addressed
Didn't the music companies lose a case a while back where they had to refund money cause they were all colluding to increase the price of music cds?.

Back when tapes were on the market it was easy to illustrate the point, since tape reproduction is significantly more costly then CDs yet the price of tapes where less then CDs.
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vergis harris, 20 Jul 2009 @ 5:31pm

my music
My music is on cdbaby.com, amazon, Napster, indies
and several other online stores but i can't seem to get it
in store at walmart. I called them and was told to apply
on the internet, how cant fine anything for new artist. Have
mant customer ready to buy at walmart.
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