Cds' High Cost Is A Relative Matter

Why do CDs cost so much?

The cost of manufacturing one of those pricey little discs is only around $2. So how come it costs $12, or $15, or even $16.95 (the suggested retail price for "premium product," such as Garth Brooks' latest album)?

Questions like that make recording-industry executives bristle.

Rene Goiffon, president of Harmonia Mundi USA (which distributes several classical and international labels), is one of the industry's best-known defenders of higher-priced CDs. He points out that the $2 manufacturing cost of a CD covers only the medium on which the music is stored, the disc itself. It's the music that really costs.

Think of videos as an analogy. When you buy a movie in video format, whether you pay $10 or $80, you're paying more than the cost of blank videotape, because you're paying for the movie that's stored on that tape. You pay your share of making and promoting the film, not the cost of the plastic.

Compared with the old LP records, Goiffon thinks you're getting a bargain at the CD counter.

"In 1982, the year Harmonia Mundi USA started operations, a good classical LP lasting 60 minutes cost around $12," he says.

"Today, taking into account the cumulative effect of inflation over the past 10 years (around 50 percent), a CD that gives you 75 minutes of music should cost $22.50."

Not everyone agrees. Klaus Heymann, owner of the up-and-coming Naxos label (now the world's third bestselling classical label), is pushing in exactly the opposite direction: to lower the price of CDs to under $7 a disc, retail.

How does he do it? From a look at how his company operates, it seems Heymann has found a strategy for staying in business in the '90s. He signs obscure musicians, not big names; he refuses to pay "outrageous fees," and he eschews the glitz of the industry by refusing to underwrite "the retinues of hangers-on, limousines or fancy hotels."

"Don't throw parties to celebrate the signing of an artist," Heymann says. "Just make another record."

A German-born businessman living in Hong Kong, married to the Japanese violinist Takako Nishizaki, Heymann is in a good position to analyze the international market. He thinks that there are only a few names in classical music that really sell a recording, and that consumers looking for Dvorak in the record store may be confused to find 25 or 30 versions available. If the consumer buys the Naxos version because it's cheapest, and later discovers the disc also is good, that consumer becomes a repeat buyer with confidence in the label.

When those obscure artists get more famous, and are courted by higher-paying labels, Heymann won't up the ante to keep them with Naxos.

"I say to them, `My friend, I understand. Take it; I'll never pay you that kind of money, and if your new label spends $2 million promoting you, I will sell lots more of your recordings.' "

Heymann has been investing some of his proceeds in education, offering brochures in several languages on the "ABCs of Classical Music" and giving advice on how to build CD collections. He also tries to keep down customer confusion by not offering competing performances of the same work in his catalog.

Maybe others will adopt Heymann's techniques. In the meantime, consider used CDs. Some smaller retailers specialize in them, and the large Wherehouse chain recently added used CDs to its inventory.

If you think CDs cost too much here, be glad you don't live in Europe. A recent issue of The Economist points out that music-loving British tourists return from visits to the United States with bulging bags full of CDs, purchased on this side of the Atlantic where they're cheap.

Cheap? Yes, if you consider that CDs cost about $5 more in England, according to The Economist. In fact, Parliament's National Heritage Committee conducted a public inquiry to find out why, and concluded that the "major record companies and the retailers are effectively cartels, and indeed partly interlocking cartels."

One major difference between the two countries is competition among the record retailers. The top 10 music chains duke it out to control 30 percent of the business in America. In Britain, the top three chains control 50 percent, and competition is correspondingly less intense.

That foreign traveler you see creeping through customs with an overstuffed bag full of CDs thinks we're very lucky to find such bargains in our record stores. What will happen when - and if - the newest prerecorded media (the MiniDisc and the Digital Compact Cassette) make inroads in the market is anybody's guess. But one thing seems increasingly certain: Customers are not ready to accept higher prices, no matter how new and different the product.