Sales of Music, Long in Decline, Plunge Sharply

Rise in Downloading Fails to Boost Industry; A Retailing Shakeout

By ETHAN SMITH
March 21, 2007; Page A1

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In a dramatic acceleration of the seven-year sales decline that has battered the music industry, compact-disc sales for the first three months of this year plunged 20% from a year earlier, the latest sign of the seismic shift in the way consumers acquire music.

The sharp slide in sales of CDs, which still account for more than 85% of music sold, has far eclipsed the growth in sales of digital downloads, which were supposed to have been the industry's salvation.

The slide stems from the confluence of long-simmering factors that are now feeding off each other, including the demise of specialty music retailers like longtime music mecca Tower Records. About 800 music stores, including Tower's 89 locations, closed in 2006 alone.

Apple Inc.'s sale of around 100 million iPods shows that music remains a powerful force in the lives of consumers. But because of the Internet, those consumers have more ways to obtain music now than they did a decade ago, when walking into a store and buying it was the only option.

Today, popular songs and albums -- and countless lesser-known works -- can be easily found online, in either legal or pirated forms. While the music industry hopes that those songs will be purchased through legal services like Apple's iTunes Store, consumers can often listen to them on MySpace pages or download them free from other sources, such as so-called MP3 blogs.

Jeff Rabhan, who manages artists and music producers including Jermaine Dupri, Kelis and Elliott Yamin, says CDs have become little more than advertisements for more-lucrative goods like concert tickets and T-shirts. "Sales are so down and so off that, as a manager, I look at a CD as part of the marketing of an artist, more than as an income stream," says Mr. Rabhan. "It's the vehicle that drives the tour, the merchandise, building the brand, and that's it. There's no money."

The music industry has found itself almost powerless in the face of this shift. Its struggles are hardly unique in the media world. The film, TV and publishing industries are also finding it hard to adapt to the digital age. Though consumers are exposed to more media in more ways than ever before, the challenge for media companies is finding a way to make money from all that exposure. Newspaper publishers, for example, are finding that their Internet advertising isn't growing fast enough to replace the loss of traditional print ads.

In recent weeks, the music industry has posted some of the weakest sales it has ever recorded. This year has already seen the two lowest-selling No. 1 albums since Nielsen SoundScan, which tracks music sales, was launched in 1991.

One week, "American Idol" runner-up Chris Daughtry's rock band sold just 65,000 copies of its chart-topping album; another week, the "Dreamgirls" movie soundtrack sold a mere 60,000. As recently as 2005, there were many weeks when such tallies wouldn't have been enough to crack the top 30 sellers. In prior years, it wasn't uncommon for a No. 1 record to sell 500,000 or 600,000 copies a week.

In general, even today's big titles are stalling out far earlier than they did a few years ago.

The music industry has been banking on the rise of digital music to compensate for inevitable drops in sales of CDs. Apple's 2003 launch of its iTunes Store was greeted as a new day in music retailing, one that would allow fans to conveniently and quickly snap up large amounts of music from limitless virtual shelves.

It hasn't worked out that way -- at least so far. Digital sales of individual songs this year have risen 54% from a year earlier to 173.4 million, according to Nielsen SoundScan. But that's nowhere near enough to offset the 20% decline from a year ago in CD sales to 81.5 million units. Overall, sales of all music -- digital and physical -- are down 10% this year. And even including sales of ringtones, subscription services and other "ancillary" goods, sales are still down 9%, according to one estimate; some recording executives have privately questioned that figure, which was included in a recent report by Pali Research.

Meanwhile, one billion songs a month are traded on illegal file-sharing networks, according to BigChampagne LLC.

Adding to the music industry's misery, CD prices have fallen amid pressure for cheaper prices from big-box retailers like Wal-Mart and others. That pressure is feeding through to record labels' bottom lines. As the market has deteriorated, Warner Music Group Corp., which reported a 74% drop in profits for the fourth quarter of 2006, is expected to report little relief in the first quarter of this year.

Looking at unit sales alone "flatters the situation," says Simon Wright, chief executive of Virgin Entertainment Group International, which runs 14 Virgin Megastores locations in North America and 250 world-wide. "In value terms, the market's down 25%, probably." Virgin's music sales have increased slightly this year, he says, thanks to the demise of chief competitor Tower, and to a mix of fashion and "lifestyle" products designed to attract customers.

Perhaps the biggest factor in the latest chapter of the music industry's struggle is the shakeout among music retailers. As recently as a decade ago, specialty stores like Tower Records were must-shop destinations for fans looking for both big hits and older catalog titles. But retailers like Wal-Mart Stores Inc. and Best Buy Co. took away the hits business by undercutting the chains on price. Today such megaretailers represent about 65% of the retail market, up from 20% a decade ago, music-distribution executives estimate. And digital-music piracy, which has been rife since the rise of the original Napster file-sharing service, has allowed many would-be music buyers to fill their CD racks or digital-music players without ever venturing into a store.

Late last year, Tower Records closed its doors, after filing for bankruptcy-court protection in August. Earlier in 2006, following a bankruptcy filing, Musicland Holding Corp., which owned the Sam Goody chain, closed 500 of its 900 locations. And recently, Trans World Entertainment Corp., which operates the FYE and Coconuts chains, among others, began closing 134 of its 1,087 locations.

But even at the outlets that are still open, business has suffered. Executives at Trans World, based in Albany, N.Y., told analysts earlier this month that sales of music at its stores declined 14% in the last quarter of 2006. For the year, music represented just 44% of the company's sales, down from 54% in 2005. For the final quarter of the year, music represented just 38% of its sales.

Joe Nardone Jr., who owns the independent 10-store Gallery of Sound chain in Pennsylvania, says he is trying to make up for declining sales of new music by emphasizing used CDs, which he calls "a more consistent business." For now, though, he says used discs represent less than 10% of his business -- not nearly enough to offset the declines.

Retailers and others say record labels have failed to deliver big sellers. And even the hits aren't what they used to be. Norah Jones's "Not Too Late" has sold just shy of 1.1 million copies since it was released six weeks ago. Her previous album, "Feels Like Home," sold more than 2.2. million copies in the same period after its 2004 release.

"Even when you have a good release like Norah Jones, maybe the environment is so bad you can't turn it around," says Richard Greenfield, an analyst at Pali Research.

Meanwhile, with music sales sliding for the first time even at some big-box chains, Best Buy has been quietly reducing the floor space it dedicates to music, according to music-distribution executives.

Whether Wal-Mart and others will follow suit isn't clear, but if they do it could spell more trouble for the record companies. The big-box chains already stocked far fewer titles than did the fading specialty retailers. As a result, it is harder for consumers to find and purchase older titles in stores.

Write to Ethan Smith at ethan.smith@wsj.com

Everyone is bootleggin' like crazy.

Yet I waited for a CD to be released yesterday before I listened to the whole thing, and I bought it for $20 canadian. Is this honorable or just outdated?

CinisterCee said:

exactly what thier excuse will be for being sue happy greedy mfs

Is that only happening in the USA?

I would love to see the situation in the rest of the world

I read the article in the WSJ.
I'm buying music. Just not in music stores. Why pay $15.00 plus for a whole CD when I just want 1 or 2 songs??

I have been saying this a long time now, im glad the article finally pointed out the fact that you have major MUSIC chains closing down because labels refuse to work with them and lower their Sale price. I have been saying for years now that Stores are not the reason CDs sell for 13.99, LABELS ARE! if a label charges a store 12 bucks a cd how can you expect a store to turn around and sell it for 10 dollars. Sure Best Buy and Target do it, but they are not MUSIC retailers they make their money off electronics,warranties,appliances etc. So last year when TOWER went out and also we cant forget Musicland/Sam goody which i was a part of for 17 years shut down close to 600 stores, people really just thought "oh thats because music is being downloaded" oh really, even downloading is down too, downloading at this point is not even a big enough fraction of music sales for it to even be considered a threat to a CD.

But this is all a domino effect, music video outlets dont show videos anymore and when they do its the same 10 people, there is no marketing of music in this country at all. I look over at the UK and i see American Artists doing 15 different Music variety shows to push their records, Why dont they do it in america? Because there are no shows like that. Things will not change until Labels shift their thought process, and that mainly is "Marketing to teenagers", this, as i have said before is MORONIC, teenagers are the most un-loyal fan base of anything, their attention span is ZERO and most of them are dumber than a second coat of paint. So right now all these labels are scrambled to make it up somehow, but they wont, because alot of the solution comes from eliminating many corporate people and that wont happen.

Music just isnt as important as it once was to people and that is the fault of the labels plain and simple, also this DREAM that the US market is the most important anymore is just that a DREAM, artists make alot more overseas than here even if they sell much less so you will see the focus change if you havent already. As with anything People have caught on, and i know people dont like to hear this, but there is alot of shit out there period, shit artists, shit producers, of course there has always been shit, but the problem is now, Shit is what is being pushed. A label now wont bank on an artist, if your 1st cd doesnt sell, later, next. Labels dont push artists, they push images, they push scandals, thats it. I talked to a friend at EMI recently who works as a rep and goes to record stores, and she said, there is no label right now that will try and push an artist that they think might not sell, the surprises you see, thicke,norah,whinehouse etc.. are all word of mouth, Labels arent pushing that, people are.

xplnyrslf said:

Why not pay 99 cents to download those 2 songs then?

CinisterCee said:

I'm guessing you believe you've spent your money on something that has value.
(count me in on that crowd)

Consider it honorable.

tA

Tribal Disorder

http://www.soundclick.com...dID=182431

I'm obviously old. I'd much prefer to buy a cd than download a song.

I couldn't even download Guitar because of technical difficulties. I'm so sick of having to register for a million web sites.

NDRU said:

I agree 1000%. (not that you're old )

Thanks to music services like Yahoo, for a small fee you can audition complete albums before you're duped into buying something that's 99% filler.
Because of the limited inventory of the few brick & mortar retailers left, for the past year my purchases have all been online (complete CDs).


tA

Tribal Disorder

http://www.soundclick.com...dID=182431

theAudience said:

yeah, shopping online is a different story. I love Amazon. I just want the actual cd.

If I'm going to pay for it, I want someone else to do the work of putting it together.

But it's a sound issue as much as a packaging issue. MP3's just don't sound as good to me.

theAudience said:

I agree! On the whole, I still prefer the Cds. But I must admit I got tired of retail stores (even Tower) years ago, because I was fed up with staring at empty bins for the kind of stuff I was looking for, or the blank stares of many retailers who had no idea what I was talking about....

Now, most of my stuff comes from Amazon, Dusty Groove, Audiophile Imports, and eBay...





...
[Edited 3/21/07 15:33pm]

NDRU said:

With today's listening public, it seems that quality is no longer a part of the equation (performance or product).

tA

Tribal Disorder

http://www.soundclick.com...dID=182431

NDRU said:

EXACTLY!

MikeMatronik said:

Actually I like downloading for singles, but I don't do it very often. Like you say, if I like the artist I want the whole album.

But a couple years ago I had to learn 20 plus songs for my band in a short period of time, and I was really glad I could get them from itunes instead of buying 20 whole albums.

But that's more of a work situation than a pleasure thing. For pleasure I almost never download anything unless it's the only way.

lastdecember said:

It's exactly what you said, but the record companies are viciously clinging to a dying business model purely out of greed. One of the reasons that the artists on American Idol have become so huge is because it's one of the few forums in the USA for people to actually see music being performed. MTV and VH1 used to do this, but they abdicated that role by pushing non-stop reality shows and relegating the actual music to their digital cable and satellite channels, most of which are not seen because people don't want to pay $200 a month in cable/satellite fees just to get those extra channels. It's bad enough that the music retailers are disappearing, but the reports that Walmart and Best Buy, which for the most part only stocks CDs from the most popular artists, are cutting back on shelf space for music will only make it even more difficult to find new music.

On top of that, why aren't the record labels following their their own stats. In the past ten years, purchases of CDs from people 30 to 55 years of age have gone up about 40 percent while sales among people 18 to 29 years of age have declined 10 to 20 percent. It's the adult market that the record companies need to aggressively go after, yet they insist on ignoring or shunning that very market.

theAudience said:

just another way I'm getting older!
[Edited 3/21/07 15:36pm]

NDRU said:

I grew up listening to cassettes...so I listened to a cassette from begining to end...guess that made me an album freak

The industry has always catered to the younger market, and I think the size of the "echo" generation gave them the numbers to justify it recently.

But a potential market size ain't shit if they don't spend their disposable income on your products.

I am so sick of reading how music sales are in decline and all the industry's excuses as to why that is. WE (music consumers) know why that is! The music that they expect us to buy nowadays is nothing more than steaming piles of CRAP!

If they'd just quit producing CRAP, they'd see sales go up! They can start by finding artists that actually have some freaking talent and put some damn effort into nurturing and promoting them instead of wasting money and energy on should-have-never-beens like Fergie!

paligap said:

Hey, have you got anything by Johnny Smith?



...Who?





tA

Tribal Disorder

http://www.soundclick.com...dID=182431

MikeMatronik said:

I grew up with lp's & cassettes. I still think in terms of side 1 & 2, even with cd's

NDRU said:

yep...it sometimes feel like that

SexyBeautifulOne said:

Amen! The music the labels want us to hear artists that suck. They've tried appealing to a younger and younger market for almost 20 years now, or at least the people our age see the shift that's occured. I refuse to buy CRAP by people like Britney and Lindsey, and whatever happened to dance music, the 12" single, genuine support of "older" artists, and trusting the public to make their own choice about what will top the charts or be heard on the radio?

Now with iTunes and downlaoding music, I fear the ability to enjoy music slipping away. The music industry is digging its own grave!

728huey said:

I've been saying this since Napster. itunes is functioning but music buyers are a multi-faceted group to sell to. Figure it out, adapt, function as a business or don't. Welcome to free enterprise and how that works.

I've got more music than I can listen to but there's always some band I've never heard or a bootleg I'm not enlightened about.

Then my other question is, why are you all talking as a group? Is there no competition amongst the record companies or do they all work together in fixing the price of music and that's why they're so pissed.

The monopoly is over on music, thank god.

I dont think price fixin is the issue here!1 if they reduce the price bestbuy and walmart will still sell it below cost maybe $5 and but the record stores r still screwed!!


I think alot of this is to do with piracy which is so random and secondly ppl r just buyin the hit singles!! the album form is losin its appeal becasue now u can pick and choose want to want!! In the late 90s record compnies tried to get rid of the singles just to force ppl to buy ful albums but they cant do that anymore!!

most ppl just buy "flavor of the month" and ignore albums

purpleunderground said:

Indeed, if they pushed great music, rather than "what they think we'd like" maybe we'd buy more of it.