by Timothy Lee
Wed, Mar 26th 2008 2:45pm
Please note the update at the end concerning the timing of this story. Good news for consumers: Rolling Stone is reporting that Wal-Mart is using its considerable negotiating power to demand lower CD prices from the recording industry. Wal-Mart and other retail stores have been using CDs as a loss leader to get customers in the door sell higher-priced merchandise. Now the retail giant has issued an ultimatum: give us CDs for less than ten bucks or Wal-Mart we'll sell DVDs and video games on those shelves instead. It seems unlikely the labels have much leverage here. The CD market is steadily shrinking, and will probably disappear entirely within the next decade, so Wal-Mart has relatively little to lose if it cuts the space it allocates to recorded music. Of course, the labels' bargaining position might not be so weak if they hadn't spent the last decade trying to kill online business models that might have given them alternative revenue sources. On the other hand, the labels could be pleasantly surprised by the result of these price cuts. Demand for music is likely to be pretty elastic, so even if they're earning less per sale, some of that might be made up through greater volume. Update by Mike: As noted in the comments, it turns out this story is from a few years ago. I'm guessing Tim found it on Slashdot, which made a similar mistake. Either way, I, personally apologize for letting this through and will be more careful in the future. That said, I think Tim's analysis is sound, even if the original effort is from a few years ago. The fact that the situation has only gotten that much worse over the past four years shows how little the record labels have been able to come to terms with what's going on out there in the marketplace.
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