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Universal cuts CD prices
Music company lowers prices up to 30% in attempt to win back customers downloading songs.
September 4, 2003: 2:03 PM EDT

NEW YORK (CNN) - Hoping to win back customers lost to free music downloads, one record company is slashing prices.

Universal Music Group said Wednesday it is cutting the suggested retail price of its compact discs to $12.98 from current prices ranging from $16.98 to $18.98.

The change is effective Oct. 1.

Universal sells nearly 30 percent of all albums in the United States, according to the company. Artists in its catalog include Eminem, Dr Dre, Sting, Elton John and Ashanti. The price cut also includes its catalog of older albums, with music by The Who, Jimi Hendrix, Ella Fitzgerald and Nirvana.

"The music industry has really been under siege.... The illegal file-sharing and peer-to-peer sites have really eaten into the music business in the last few years," Jim Urie, president of Universal Music and Video Distribution, said on CNNfn's The Biz Thursday. He estimated that industry-wide sales are down 30 percent from four years ago due to illegal downloads.

"We feel like we've got to make this change to make music a better value for the consumer," he said. "There's no question we're down to the sweet spot with consumers."

But Urie conceded that the strategy has risks for the company.

"Certainly we need to sell a lot more under this new pricing schedule than we needed to last week to make it work," he said.

He also said that the cheaper CDs won't end music downloads from the Internet, but he hopes that consumers migrate to the legal music sites that pay the recording companies for the songs.

"There's no question the digital download business will grow exponentially in the next couple of years," he said.

Universal Music Group is the world's and the nation's largest music company, with almost as much U.S. market share as No. 2 Warner Music and No. 3 BMG combined. It is a unit of French media conglomerate Vivendi Universal (V: Research, Estimates) but is not one of the Vivendi Universal entertainment assets included in the recently announced purchase by General Electric Co. (GE: Research, Estimates).

Spokesmen at Warner and BMG, as well as at Sony Music and EMI Group, the other major recording companies, had no immediate comment Thursday. Warner Music is a subsidiary of AOL Time Warner (AOL: up $0.04 to $16.80, Research, Estimates), the parent company of CNN/Money.

The Wall Street Journal reported that the move shocked executives at competitors, who are expected to respond with price cuts of their own. "They are basically forever changing the record business today," one unnamed executive at a competing label said. "It's a massively bold move; it's the kind of move we as an industry need to be making."

Consumers have complained about the price of CDs, and the availability of free or cheap music downloads on the Internet has been cutting into industry sales for several years.

The IFPI, the international trade group, estimates that pirated music now costs the recording industry $4.6 billion annually, not including the value of CDs burned by individuals.  Top of page

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