Pennies That Add Up to $16.98: Why CD's Cost So Much (Published 1995) (2024)

For years, music lovers have been complaining about high CD prices. If a CD costs as much to have manufactured as a vinyl record, their logic goes, then why does it cost so much more to buy?

The response from record labels has been to raise CD prices even higher. Rod Stewart's new CD, "A Spanner in the Works" (Warner Brothers), which arrived in stores last month, is a good example. It carries a $16.98 list price, the same as most CD's by established stars, and more than 100 times the cost of the materials used to manufacture it.

Why the discrepancy, and where does all the profit go?

The journey for what was to become the Mr. Stewart's new CD began months ago at the giant offshore oil field of Marjan, Saudi Arabia, and wound its way through Chevron's oil refinery and chemical company in Pascagoula, Miss., a General Electric plastics factory in Pittsfield, Mass., and WEA Manufacturing in Oliphant, Pa., where 10 to 15 cents' worth of raw materials were converted into "A Spanner in the Works." (By comparison, the raw materials necessary to make a single vinyl album cost 40 cents.) The plastic and paper used to manufacture the jewel box and CD booklet for the Stewart CD (at a company called Ivy Hill in Louisville, Ky.) rang in at around 30 cents.

Because Time Warner owns WEA and Ivy Hill, Warner Brothers Records does not have to buy its CD's from them, as an independent record company would at a cost ranging from 75 cents to $1.10 a disk.

"In the early days of compact disks in the 80's, CD's cost between $3 and $4 to get manufactured," said David Grant, the vice president of sales at WEA. "But as CD making processes have become more automated and capacity has been added, CD costs have come down and the market has steadied."

James Shelton, the president and owner of Europadisk, the only CD, vinyl and cassette manufacturing plant in Manhattan, said his side of the business was not lucrative. "The large profit margin is at the record company level," he said, "because we sell CD's for 75 cents. And in addition to raw materials and the cost of the machines and labor, we have to pay a royalty to three different inventors on every single CD we manufacture." (Three electronics companies, Philips, Thompson and Discovision, have patents on different parts of CD manufacturing.)