iTunes and Wal-Mart

7 03 2008

No, Apple and Wal-Mart haven’t merged, but I was intrigued by a Billboard piece yesterday (here is the Yahoo News link) that reported on Wal-Mart proposing a five-tiered pricing structure that, according to the piece, “would allow the discounter to sell albums at even lower prices and require the labels to bear more of the costs.”

According to sources, the Wal-Mart proposal would allow for a promotional program that could comprise the top 15 to 20 hottest titles, each at $10. The rest of the pricing structure, according to several music executives who spoke with Billboard, would have hits and current titles retailing for $12, top catalog at $9, midline catalog at $7 and budget product at $5. The move would also shift the store’s pricing from its $9.88 and $13.88 model to rounder sales prices.

Not only is this an acknowledgment of the decline of the sales of physical products (CDs and music DVDs) but it is also a further nail in the coffin of allowing the labels to fix their retail prices in whatever way they’d like.

You may remember that the biggest beef that labels like Universal Music had with Apple’s iTunes was that they couldn’t force Apple to sell with a pricing structure that the labels wanted.

“I don’t think this is a Wal-Mart discussion,” one top executive at a major label said. “I think this is a future-of-the-business discussion. Right now everyone is paralyzed.”

As I’ve already pointed out, Apple seems to finally be moving in the direction of multiple pricing.  It is intriguing that their huge success in music distribution (they seem poised to overtake Wal-Mart as the biggest music retailer in the US by the end of this year) is putting pressure on others to adapt their sales model as well.  If you have to sell pieces of plastic with more than one song on them, you have to offer the customer something more than iTunes does.  In this case, Wal-Mart seems to be offering much lower cost.

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