What can the airline and supermarket industries teach studios about setting their prices?
The term 'card rate' harks back to another era in recording studio history. It refers to a time when the prices charged by studios could still be cast in paper and ink, if not stone. And back before online and storefront instant-printing emporiums were cheap and ubiquitous, even ink seemed reasonably permanent. Then, the notion of the card rate was still often a place where the financial conversation would start — the MSRP sticker that was the agreed-on starting point for some hopefully friendly hondling between buyers who understood that studios and the people who worked in them had bills to pay, and sellers who realised that volume — and loyalty — were indeed worthy of discounts.
The notion of the card rate as definitive is long over. The rise of the personal studio, where the exigencies of overheads wax and wane with its owner's own needs, and rates vary based on anything from personal relationships to the phases of the moon, have thrown a spanner into what had once been a very Adam Smith-friendly machine. The card rate still plays a role, but it's as much a psychological one as it is related to practical arithmetic. "It's always been a starting point for discussions about money, and it still is, except it's not really connected to reality like it used it be,” is how one Nashville studio manager expressed it to me. The card rate still putatively takes into account brass tacks such as monthly rents, electric bills and insurance premiums, but it also acts as a manifestation of a studio's own sense of self-worth, which these days can span the spectrum from pragmatic to delusional like never before.
However, reality is intruding more intensely than ever. At a time when cat videos and political peccadilloes go viral in a matter of minutes, information about studio rates is a commodity like anything else, readily available on the street, whether it's a real one or a virtual avenue. People like to share their experiences, including what they paid for them. That creates a problem for studios. The rate card has essentially been hijacked, and it's the lowest rate that anyone cares to share that becomes the benchmark.
Even when you can start from a ground-zero number of your own choosing, simple arithmetic is no longer sufficient in a more complicated music-recording environment. As one Manhattan studio owner told me, the rate becomes a moving target, with calculations having to take into account the complexity of a project, the health of current accounts receivable, even the time of year (Summer is still touring season and many regular clients are on the road). Does the artist have a label? That matters, but less than it used to. "The size of a budget for artists on the same label can vary wildly, and even the same artist on the same label can have a substantially different budget from one album to the next,” that same studio manager related.
So is a card rate a thing of the past, a relic of a quainter era of the studio business? Not necessarily. Everything, from the universe to a conversation about costs, has to start somewhere, but it's apparently true that the deviation from that starting point is as important as the final rate itself. In other words, the actual price paid may be less critical than the client getting the sense that he or she has gotten a great deal. The experience of national retailer JC Penney speaks to that point. In early 2012, the department store ceased offering sales on the products they sold, and instead implemented an across-the-board mark-down of all of their merchandise, by as much as 40 percent — about the same percentage as its deepest sales discounts used to be. This 'Every Day' pricing strategy was intended to offer consumers predictable low prices, which would remove any anxiety they had of buying on the wrong day and missing a deeper discount. What could possibly go wrong?
Plenty, it seems. The move was an utter disaster. As it turns out, consumers love to feel like they are getting a bargain. Eliminating that frisson drove them away from the store, dinging their revenue by 25 percent and toppling their newly installed CEO, who had cooked up the scheme in the first place. A new CEO came on board and immediately re-implemented discount sales. Even if, after a sale was announced, the same coffee pot cost as much as it would have under the failed 'Every Day' pricing strategy, buyers preferred to get it on sale, satisfied only then that they were getting a deal.
Recording studios have been benefitting from that same effect all along: leave enough headroom in the stated price so that you could knock off another five or 10 percent as the deal-maker at the end of the day. The problem now is finding that initial financial sweet spot, at a time when everyone knows what everyone else is paying and there are so many more options for clients to choose from. Some studios are successfully using a version of the old magician's trick, which is to distract the client from the number and focus instead on extras — anything from not charging for assistants to picking up the take-away food bills. The studio business might also take a leaf from the playbook of another beleaguered industry: US airlines collected over $27 billion in baggage and other fees last year — a third of their total revenue and enough to make them profitable as an industry after many money-losing years. It wouldn't be the first time ancillary sales items were marked up — analogue tape was a favourite for that for years. The old Chung King Studios in New York, a regular rapper's haunt, would charge $25 a head for posse members, ostensibly to cover damages, but the net effect was to make some visitors a bit less rambunctious and actually ended up occasionally being a small profit centre. Just don't do what discount airline RyanAir considered back in 2010: charging £1 to use the aircraft's loo. Popular displeasure quickly aborted that idea. Customers will always let you know what they won't pay. It's your job to figure out what they will.