Facing the music
Universal Music Polska has responded to the stagnation on the Polish music market with a campaign called Ludzka Cena (Fair Price), which will see the company lower the price of CDs by over 30 percent. Many albums by foreign artists, including the latest releases, should cost no more than zł.44.99, significantly lower than previously, when it wasn't uncommon for foreign albums to cost around zł.70.
"It was a natural thing to do when CDs are not selling and clients do not accept the price," the president of Universal Music Polska, Andrzej Puczyński, explained. "It took us one and half years of negotiations with the head office to finally get them to accept our idea." He added that lowering the prices required the permission of every artist. The cheaper CDs differ from their predecessors as they have a shorter booklet.
Wait and see
"This is an experiment which we are watching closely," the president of Sony BMG Poland, Jacek Jagłowski, said. However, when asked about the possibility of his company cutting prices in a similar way, he underlined the need to wait until the financial effects of Universal's campaign are known.
"Right now I can't convince the head office that this move would bring higher profits than our current ones," Jagłowski explained. He also criticized Universal for undertaking such a campaign on their own, claiming that it should have been a joint, planned action by all record companies. The president of EMI Music Poland, Piotr Kabaj, is also negotiating to lower the price of the company's products. "But the artists are not agreeing," he laments.
There has been a dramatic fall in music sales since 2001, when 24.84 million units were sold. In 2004 sales amounted to just 11.7 million units. Although significant, the fall is perhaps not quite so dramatic considering that cassettes have almost disappeared from the market since 2001. In 2001, 14.4 million CDs were sold while in 2004 the number was 10.5 million. Kabaj estimates that 2005's figures will be closer to 12 million, but he emphasizes that Poles tend to buy cheaper Polish CDs (costing around zł.30) as well as compilations. "Twenty-five percent of CDs sold are compilations - this is a unique phenomenon in the European market," EMI's president said.
Net losses
Young people tend to benefit most from the opportunities that the internet provides for downloading music for free, and Sony BMG's Jagłowski blames the fall in CD sales on the kids: "We just do not have young clients. If we look at the best-selling CDs, we can see that it's music that appeals to clients over 30 years old," he explained. But Kabaj points out that people over 50 hardly buy CDs as well, while in the West they make up around 20 percent of music stores' customers.
Jagłowski believes that rapid technological development is to a large extent responsible for people illegally downloading music off the internet. He points out that traditional, non-pirated music formats were only introduced in Poland in 1994, when the cassette was dominant.
"Poles just never had time to learn to buy expensive CDs, as the internet enabled them to get music for free," Jagłowski complains. Kabaj shares his point of view. "In 15 years we had to do what the West did in 40 years. The tradition of buying music just didn't have time to develop," he said.
Although traditional piracy is slowly becoming obsolete, Puczyński claims that, not taking so-called "highbrow genres" into account, pirated CDs make up around 50 percent of the market.
Too much for tunes
All of this seems to confirm that original CDs are just too expensive for the average Pole. A pirated CD costs zł.10, three times less than Polish albums. The industry blames the music stores for setting too high margins on CDs, since only 10-15 percent of the money paid for a CD goes to the producer. Around 50 percent of each disc's price is the store's margin and VAT. That's where the president of EMI sees the problem.
"The problem is that music formats are not treated by the state as a means for promoting culture, but rather as consumption products," Kabaj complains. While the tax on books or newspapers is seven percent, CDs are taxed the regular 22 percent VAT rate. "If the VAT on CDs was lowered to seven percent, their prices would go down," he says. "What's the difference between good music and a good book?"
Facing the music
As for the future of the industry, Universal's Puczyński thinks that Apple's iTunes could be the way forward. In the US, 80 percent of internet users download music for a fee even though internet piracy was booming there just a few years ago. Still, he worries that it is too early to introduce this format in Poland just yet. "It is just too expensive," he says.
EMI's Kabaj sees great potential in cell phones. "The cell phone is the future and we will have to be present in this sector," he believes. He claims that in the future all mobiles will have MP3 players. However, he sees the mobile phone operators' position as a problem. "In return for providing our songs, they want to charge 50 percent of the price," Kabaj said.
When it comes to CD sales, Puczyński thinks that it is too early to talk about the effect of the Ludzka Cena campaign, but he promises to continue negotiations with every new title on the market. He thinks that CDs will not disappear and will hold a stable portion of the market, but albums will mainly be available in the form of computer files and cell phone ring-tones.
"Music has never been available via so many mediums," Puczyński says. "We just have to find ways to make them profitable and legal in some cases."
