It’s the price tag, stupid

ON THE EDGE column:

It’s becoming an annual ritual for this column: scribbling while Big Music burns. According to Nielsen SoundScan, the final, grim tally for 2008 album sales indicated a 14 percent drop from the previous year. Measured against the peak sales year of 2000, album sales have declined a staggering 45 percent.

Digital album downloads continued to skyrocket in 2008 - up 32 percent - but online purchases still don’t come close to shoring up the death spiral of the physical album.

There’s a kind of presentism, however, that infects many of the analyses of the industry’s seemingly precipitous decline during the past eight years.

Often overlooked is that we’ve been here before.

Peter Bogdanovich’s wonderful documentary “Tom Petty and the Heartbreakers: Runnin’ Down a Dream” recounts Mr. Petty’s confrontation with his then-label MCA Records over the pricing of his 1981 album “Hard Promises.” The going rate for an LP in those days was $8.98. MCA wanted to raise it to $9.98. Mr. Petty balked, arguing, “If we don’t take a stand, one of these days, records are going to be $20.”

Why was MCA bent on raising the price of an album?

Because record sales were in a slump that had begun in 1979.

Stan Liebowitz of the University of Texas at Dallas School of Management noted in a 2002 paper that in a seeming mirror image of today’s predicament, album sales were jump-started in the ‘80s by new media formats: first the cassette and then, more significantly, the compact disc, both of which dramatically increased the portability of recorded music.

Despite, or perhaps because of, this successful technological bailout, Mr. Petty’s prophecy was borne out in succeeding years: The price of an album crept ever upward until we arrived at the end-of-the-century absurdity of $20 CDs in mall-rat holes like Sam Goody.

Is it any wonder music consumers were such dry tinder when the fire of illegal MP3 file-sharing was lit by Napster? It’s only logical that if the gulf between the price of an illegal download - zero - and the price of a legally purchased CD had been narrower, the migration to file-sharing sites would have been commensurately smaller.

Indeed, it was the discount of 6 or 7 bucks offered by big-box retailers such as Wal-Mart and Best Buy that helped put those mall-rat holes out of business (as well as, alas, the selection-rich Tower Records chain).

So imagine a world in which the distance between a pirated album and a legal one was, say, $8 or $9. It might look something like Apple’s iTunes Music Store or Amazon.com’s MP3 outlet - where business these days is brisk.

Not surprisingly, the four major music labels resent not just the loss of control over the distribution of music, but the usurpation of their power over pricing. They clamored for years for Apple Computer head Steve Jobs to unlock his rigid 99-cent price tag for singles and $9.99 for albums.

This week, it was announced that the labels will get their wish: In exchange for the labels’ relaxing their requirement of digital-rights-management (DRM) protections, Apple agreed to a $1.29 price point for new singles and 69 cents for older, less desired tracks.

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