This is Celia Hirschman with On the Beat for KCRW.
Last week, three and a half million music consumers received rebate checks for $13.86 each. The rebate was the result of a 43 state class action lawsuit. The suit alleged that record companies conspired to illegally raise the price of their CDs, by imposing minimum pricing policies. Many people are cheering at the judgment. But not me. Not now. Not since I've come to understand the context for the suit. In fact, now I think the labels were conspiring, to try and save the retail music business.
Household retailers like Best Buy, Target and WalMart sometimes sell hit titles for far less than they paid for them. They do it to lure folks into stores, in the hopes of selling them a television or appliance. They are not dedicated music stores, but rather their core business is electronics, large appliances and household goods.
Let me show you how this plays out in real life.
The band, The Get Up Kids have a new 14-song CD out. The label set the list price at $14.99. Most retailers are selling the album for somewhere between $13 and $15 dollars. Even Best Buys online price is $11.99. But in the Best Buy Sunday circular, the price for that CD is listed at $5.99 nationwide. Best Buy probably bought the record from the distributor for almost $10, so they'll take the hit in profits as a marketing expense, and Best Buy takes the hit in profits in dozens of records a month, usually with some of the hottest titles at retail.
Unbelievable pricing structures that undercut all other music retailers, to sell refrigerators, may be a compelling marketing strategy, but it s not very good business for record labels. After all, what happens to all the dedicated music retailers who don t sell refrigerators? If they go out of business, labels will be left with appliance and electronics stores as the main outlet for music in major markets.
Best Buy is an aggressive retailer who has always challenged the traditions of the music business, and they often come under fire for it. I recently wrote a commentary supporting Best Buy's right to be the exclusive retailer for the Rolling Stone DVD set, Four Flicks. I believe that if you pay for the right of exclusivity, you should be able to have it. But this situation is not about paying for exclusivity. This situation is about undercutting the price of music to sell appliances, and in the process, intended or not, helping to shut down many music retailers in the market. It may be good for the giant discount retailers, but not good for the industry as a whole. It's a challenging dilemma to be in, and I now understand why the labels tried to set minimum pricing standards.
I'm one of those 3.5 million people who filled out a form for the rebate, not knowing the basis of the lawsuit. The record business just paid $67 million dollars to folks like me, and it does not gladden my heart. The lawsuit began 4 years ago, and in that time thousands of record stores, large and small, have closed. The stores went out of business for many reasons but undercutting the price of the hits by discount stores has been a significant complaint.
I've decided to use my $13.86 the best way I know how to donate the money to Music Cares, an organization that helps musicians and music professionals who've recently come upon hard times. It may not solve change pricing laws, but I'll sleep better at night.
This is Celia Hirschman for KCRW for On the Beat.