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Hard to Spin Dreary News on Compact Disc Sales

26 January 2008

The compact disc is in serious trouble. That’s no secret. But recent headlines suggest it’s in even worse shape than previously thought.

The U.S. consumer, responsible for more than two-thirds of domestic economic activity, is facing a possible recession. Oil is near record levels. Inflation is rising. Credit problems are growing. The real estate bubble is bursting. And the stock market is getting hammered.

And unlike the late nineties when stocks—and tech stocks in particular—pumped money into oh so many brokerage accounts and unlike the past several years, when real estate exploded in value, we are now in a period where no widely owned assets are in a bull market.

Heck, even people who stash cash under their mattresses are coming up short. In a bid to stimulate economic activity, the Federal Reserve, in an inflationary move, this month slashed interest rates dramatically at a time when the dollar is already at multi-year lows against other major currencies. (In November, the Taj Mahal said it would no longer accept payment in dollars!)

Within this increasingly negative macro-environment, the music business has more than ever to worry about (not to mention RADIOHEAD’s name-your-price experiment, which we’ll likely see more of in the future from other acts).

According to Nielsen SoundScan, U.S. compact disc sales plunged 19% last year. With the consumer wobbling like a Weeble (but with no guarantee that he won’t fall down), results will likely be even worse this year.

ALICIA KEYS’ latest topped the Billboard charts for the past week, selling all of 61,000 copies, according to Nielson SoundScan. That’s the lowest weekly figure ever for a #1 album aside from the “Dreamgirls” soundtrack, which sold 60,000 copies last year.

And there was more bad news this month.

On January 10th, Barnes & Noble surprised Wall Street slashing its fiscal fourth-quarter profit projection, saying, “Sales of recorded music were significantly below forecast.”

Yes, even with all this doom and gloom swirling about the industry, the numbers still were a shock.

Barnes & Noble stock suffered its biggest one-day decline in seven years, plunging almost 20% to a 52-week low. The sell-off cut about $400 million from company’s value. Later that day, Borders Group said its music sales fell almost 13% from a year earlier.

Barnes & Noble’s results – in particular – weren’t a total surprise.

I’ve bought discs at Amazon.com, Overstock.com, eBay.com, Amoeba Records, Virgin Records, the WFMU Record Fair, stoop sales in Brooklyn and even a flea market in Rome (the FABULOUS POODLES’ hard to find His Master’s Choice).

But never from Barnes & Noble.

Why?

It offers the worst of both worlds: limited selection at awful prices.

As a bookseller, first and foremost, Barnes and Noble should seriously rethink its music strategy, up to and including exiting the business entirely.

But don’t shed any tears for the big boys. Save them for the smaller players who have much more to worry about than just downloading and CD ripping.

A lack of scale, resources and product diversity prevents them from competing effectively against deeper-pocketed rivals who can sell music at a loss to attract customers in hopes that they’ll buy higher margin items.

Therefore, CD sales will come from fewer and fewer retailers. And because these are primarily general interest destinations that cater to the masses, if you’re looking for something even relatively obscure, well….good luck to ya! Go online.

Exacerbating this downtrend, many retailers are reducing or plan to reduce the amount of space allocated for CDs. An April 27, 2007 Wall Street Journal article pointed out that 65% of U.S. music sales (including digital sales) are through big-box chains like Wal-Mart, Target and Best Buy. To be fair, although these retailers offer little to discerning music fans, they shouldn’t shoulder all the blame:

“For his part, Best Buy’s Mr. Arnold [senior vice president for entertainment] says the blame for waning consumer interest in CDs lies with the record labels, not with stores like his. “Music has become a commoditized item,” he says. “The CD is perceived by the consumer to be a $10 item, and the manufacturers continue to release new titles at $15 to $18.98.” To remedy that situation, he says he has urged labels to move to a “paperback-book model,” with no-frills packages priced cheaply for most customers, and more deluxe presentations for die-hard fans.” (WSJ 4/27/07)

Mr. Arnold is right. The take it or leave it one-price approach is increasingly anachronistic.

My question to the record companies: Since I, like many people, won’t pay a retailer $18.98 for a new CD why not get some of my business rather than none of it?

Yes, that would require some adapting. But if adapting is out of the question then empty stores will soon provide the answer.

 

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