Biggest U.S. record retailer battles record labels over prices
Wal-mart wants every CD you buy to cost less than ten bucks. And the nation's largest retailer -- which moved a quarter of a trillion dollars' worth of goods last year -- usually gets its way. Suppliers who don't accede to Wal-Mart's "everyday low price" mantra often find their products bounced from the chain's stores, excluded from being sold to the 138 million people who shop at a Wal-Mart store every week.
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.
Tensions are not as high now as they were last winter, but making sure Wal-Mart is happy remains one of the music industry's major priorities. That's because if Wal-Mart cut back on music, industry sales would suffer severely -- though Wal-Mart's shareholders would barely bat an eye. While Wal-Mart represents nearly twenty percent of major-label music sales, music represents only about two percent of Wal-Mart's total sales. "If they got out of selling music, it would mean nothing to them," says another label executive. "This keeps me awake at night."
Wal-Mart would not directly comment on tensions with the labels, but Gary Severson, Wal-Mart's senior vice president and general merchandise manager in charge of the chain's entertainment section, did allude to the dispute about music prices. "The labels price things based on what they believe they can get -- a pricing philosophy a lot of industries have," he says. "But we like to price things as cheaply as we possibly can, rather than charge as much as we can get. It's a big difference in philosophy, and we try to help other people see that." Virtually no industry executives would publicly comment about their company's relationship with Wal-Mart. But off the record, many record-industry executives shared their concerns. "I don't think there is a music supplier in America who really enjoys doing business with Wal-Mart," says one major-label rep.
No one in the music business ever expected Wal-Mart to become the most powerful force in record retailing. In the past, the business was shared among smaller local and regional chains such as Musicland, which once had an estimated ten percent of the market. But as Wal-Mart and other national discount operations such as Target and Best Buy have grown -- approximately half of all major-label music is sold through these three -- an estimated 1,200 record stores have closed in the past two years, according to market-research firm Almighty Institute of Music Retail. Last February, Tower Records, with ninety-three stores, declared bankruptcy and is now up for sale; Musicland has already changed owners, with many local outposts shuttered.
Wal-Mart is like no traditional record seller. Unlike a typical Tower store, which stocks 60,000 titles, an average Wal-Mart carries about 5,000 CDs. That leaves little room on the shelf for developing artists or independent labels. There's also scant space for catalog albums, which now represent about forty percent of all sales. At a Wal-Mart Supercenter in Thorton, Colorado, for example, there were no copies of the Rolling Stones' Exile on Main Street or Nirvana's Nevermind. While most of the latest hits were priced at $13.88, some records -- from the O Brother, Where Art Thou? soundtrack to the latest by Yellowcard -- were displayed for $9.72. Says Severson, "Paying fifteen dollars for a piece of music is a difficult value equation for customers."
For the music industry, having such a dominant retailer is like being stuck in a bad marriage. Whereas traditional music retailers took advertising money from the labels to push new releases in Sunday newspaper circulars, Wal-Mart barely advertises locally. It relies on national campaigns, where it promotes its own low-price policy. "Wal-Mart has no long-term care for an individual artist or marketing plan, unlike the specialty stores, which were a real business partner," says one former distribution executive. "At Wal-Mart, we're a commodity and have to fight for shelf space like Colgate fights for shelf space."
In the same way that Wal-Mart made it difficult for local mom-and-pop retailers to compete with its low prices, it has hurt smaller music stores. "When you're buying CDs for twelve dollars and selling them for ten like Wal-Mart, it makes the rest of us look like we're gouging the customer, when we're not," says Don Van Cleave, head of the Coalition for Independent Music Stores, a retail consortium. "It's supertough to compete with that price point." Even online, Wal-Mart sells songs for eighty-eight cents, compared with ninety-nine cents at the market leader, Apple iTunes Music Store.
Getting Wal-Mart excited about carrying a record is at the top of every label's to-do list, but it's harder than it sounds. There is an immense cultural chasm between slick industry executives and Severson's team of three music buyers at Wal-Mart headquarters in Bentonville, Arkansas. Only one of the three had ever worked in music retailing -- until that person moved to a new division in August and was replaced by someone who previously bought Wal-Mart's salty snacks. (Wal-Mart also relies on buyers at its two distribution companies, Handleman and Anderson Merchandisers, who purchase records as well as stock the Wal-Mart stores.)
"Content-wise, Wal-Mart is limited about what they sell," says one label chieftain. "Wal-Mart is Middle America's shopping headquarters, with different buying habits and consumer tastes than those who live in Manhattan and L.A." When founder Sam Walton christened the first Wal-Mart in 1962, music was never a priority -- it wasn't an everyday, easy-to-stock product like light bulbs, since the Top Ten changed so much. The chain also had specific objections to music. Walton wanted all stores to remain family-friendly, and in the rural South, rock & roll had the potential to turn away many customers. In 1986, the Rev. Jimmy Swaggart led one such campaign to ban music from Wal-Mart, saying rock fostered "adultery, alcoholism, drug abuse, necrophilia, bestiality and you name it." Albums and magazines about rock (including Rolling Stone) were temporarily pulled from the Wal-Mart shelves.
Wal-Mart's wariness about music ended once the music industry adopted a voluntary advisory sticker on albums deemed to contain adult language or sexual content. Today, before any new album is released, someone at each label is charged with asking, "Do we have any Wal-Mart issues?" If an advisory sticker is placed on an album, the label will put out a clean version about ninety percent of the time. Since the edited version of a hit record usually averages only about ten percent of a record's total sales, they do it mostly to keep Wal-Mart happy.
Wal-Mart has loosened up a bit, too. Eminem's albums, stickered or not, are not carried by the chain, but it does sell the 8 Mile soundtrack. And it carries an edited version of 50 Cent's debut. Since the labels are so adept at self-policing, though, censorship controversies are now rare. "There have been examples in the past, but it's not a current issue," says Severson.
Wal-Mart has also urged the labels to create exclusive new products that would lower music prices. In a short-lived test, Universal excerpted seven songs from existing albums by acts such as Sum 41 and Ashanti and sold them at Wal-Mart for $7. Few other labels wanted to participate. "They proposed it to a bunch of artists and managers, but everyone was worried that we are sending a message that instead of the sixteen-track album we sold, those nine extra songs were filler," says a label executive.
Some record executives think they can survive Wal-Mart's push. They argue that the hottest acts will always command a premium price. "50 Cent sold 7 million copies," says one rep, "and I guarantee that many of those sold for fifteen, sixteen dollars." And they believe that Wal-Mart will want to carry those hits because they draw customers. "If they can't find a record at Wal-Mart, people will go elsewhere," says one executive. "We should play hardball." But each label is watching the others to see if any make major concessions to Wal-Mart's demands for lower prices. A label that gives in could gain shelf space at the expense of another. "If you lose an account, one of your rivals could get more product in the store and get one up on everyone else," says a major-label rep. "You have to tread cautiously."
The tug of war between the labels and Wal-Mart isn't going away soon. The chain is aggressively opening new stores -- fifty-seven in October -- including some in urban areas. So unless it makes good on its threat to cut back on its music section, it will continue to grow as the top record store and become even more powerful. Laments one industry rep, "There is some impending doom associated with us not helping them."
Price War: Does a CD have to cost $15.99?
Major labels insist that the low prices mass retailers such as Wal-Mart and Best Buy demand are impossible for them to achieve. But Best Buy senior vice president Gary Arnold counters, "The record industry needs to refine their business models, because the consumer is the ultimate arbitrator. And the consumer feels music isn't properly priced." Labels point to roster cuts and layoffs as evidence that they can't sell CDs cheaper.
This breakdown of the cost of a typical major-label release by the independent market-research firm Almighty Institute of Music Retail shows where the money goes for a new album with a list price of $15.99.
Joined: Sun Oct 17, 2004 4:01 am Posts: 19477 Location: Brooklyn NY
'Daily Show' book too racy (liberal) for Wal-Mart
LITTLE ROCK, Arkansas (AP) -- Wal-Mart canceled an order for a best-selling book by Jon Stewart and the writers of "The Daily Show" after executives learned that it contained a photo of nine naked, aged bodies, each with the superimposed head of a Supreme Court justice.
"America (The Book)," a mock school text that lampoons the American government in much the same way the Comedy Central show spoofs the news, includes cutouts of the justices' robes and a caption asking readers to "restore their dignity by matching each justice with his or her respective robe."
Executives for the Bentonville-based retail giant deemed the book inappropriate for its shelves this week.
"We were not aware of the image that was in the book (when Wal-Mart ordered it) and we felt the majority of our customers would not be comfortable with it," said Wal-Mart Stores Inc. spokeswoman Karen Burk. "We offer what we think our customers want to buy. That just makes good business sense."
Jamie Raab, a publisher for Warner Books, which produced "America," said the naked justice joke fits perfectly with the book's theme.
"It's not gratuitous and it's very much in tune with the rest of the book," Raab said. "It's funny, yet to the point. When you undress the Supreme Court justices, they're just men and women and you have to judge them on who they are and what they do. It makes you look and think and laugh."
Raab said she doesn't fault Wal-Mart for its decision, but added that she didn't see the point in banning something that isn't intentionally sexually explicit.
Wal-Mart has a well-known policy of refusing to carry magazines with racy covers or CDs with explicit lyrics.
The chain is offering the book on its Web site. Burk said the store's online customers are a "different audience" and that the company wanted to give an option to people looking to buy the book from Wal-Mart.
Unfortunately, it's so elementary, and the big time investors behind the drive in the stock market aren't so stupid. This isn't the false economy of 2000.
Joined: Sun Oct 17, 2004 12:36 am Posts: 3556 Location: Twin Ports
The trouble is, they do this with EVERY supplier that they sell.
The ultimate result is that prices drop, and to make up for it, work is shipped OVERSEAS.
A classic example is Master Lock. Once made in the USA, when Wal-Mart demanded lower prices (and if they didn't get it, they were going to switch to an overseas competitor), Master Lock conceded so as not to lose Wal-Mart's business.
Master Lock closed many, if not all, of its US factories, and now imports its locks.
This is just one of MANY stories similar.
Wal-Mart is giving you lower prices, while causing you to lose your job at the same time.
The end result of this charade with the record industry is very predictable:
Artists will recieve an even LOWER amount of money than they are now.
The labels and Wal-Mart will be just fine.
Wal-Mart is the ULTIMATE corporate whore and needs to be destroyed.
I'm doing my part. I have NEVER shopped there.
What they have done to small business is utterly disgusting.
_________________ Rising and falling at force ten
We twist the world
And ride the wind
Joined: Sun Oct 17, 2004 2:34 am Posts: 89 Location: SoCal
Quote:
If an advisory sticker is placed on an album, the label will put out a clean version about ninety percent of the time.
Some un-knowing customers are unhappy! They get the cd home and find out it's been edited. There is an advisory sticker on it - but no sticker that says that it's 'clean'. I've heard of this happening over and over.
Quote:
There is an immense cultural chasm between slick industry executives and Severson's team of three music buyers at Wal-Mart headquarters in Bentonville, Arkansas. Only one of the three had ever worked in music retailing -- until that person moved to a new division in August and was replaced by someone who previously bought Wal-Mart's salty snacks.
No wonder I have never purchased music at WallyWorld - I don't plan to either.
Why the heck aren't the CDs I have special ordered that aren't promoted not $2.40 cheaper?
Because that money is being used to promote the big name artists. Only 1 out of 10 albums makes a profit, and those Britney Spears albums that sell millions of records cover the losses on the 90% of albums that don't profit.
_________________ There's just 2 hours left until you find me dead.
Why the heck aren't the CDs I have special ordered that aren't promoted not $2.40 cheaper?
Because that money is being used to promote the big name artists. Only 1 out of 10 albums makes a profit, and those Britney Spears albums that sell millions of records cover the losses on the 90% of albums that don't profit.
That's funny, we keep hearing the same line from the drug companies. Amazing how they still manage to make profits hand over fist. There's a lot of creative shit hidden in the label overhead and retail overhead (read fat margin).
_________________ no need for those it's all over your clothes it's all over your face it's all over your nose
Joined: Mon Oct 18, 2004 4:02 am Posts: 1918 Location: Ephrata
At what point can we effectively start doing something to stop WalMart from sensoring items? They are now the number one record store and the number one retailer. Can they really legally censor items given their command of the marketplace?
Correct me if I'm wrong but they do sell condoms right? I mean we know what those are for! Why not stop selling those too? This country is becoming way too scary for me. We just keep putting up with it little by little.
I go out of my way not to shop at WalMart and I hope more people do the same.
_________________ no need for those it's all over your clothes it's all over your face it's all over your nose
Joined: Sat Oct 16, 2004 11:53 pm Posts: 2918 Location: Right next door to hell.
gogol wrote:
owen meany wrote:
Because that money is being used to promote the big name artists. Only 1 out of 10 albums makes a profit, and those Britney Spears albums that sell millions of records cover the losses on the 90% of albums that don't profit.
That's funny, we keep hearing the same line from the drug companies. Amazing how they still manage to make profits hand over fist. There's a lot of creative shit hidden in the label overhead and retail overhead (read fat margin).
Well I don't know about the drug companies (we don't pay inflated drug prices in Canada), but it's just the way things are in the record industry. There are thousands of new records released each year, with only a few hundred that actually sell more than say 100,000 copies.
I agree that CD prices are unnecessarily inflated, and are more expensive now than they were 10 years ago, which doesn't make any sense. But I was just answering the question of why you'd pay the same amount for an artist that has little promotion as you would for an artist with multi-million dollar videos and lots of promotion.
_________________ There's just 2 hours left until you find me dead.
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