Despite a Marketing Blitz, CD Sales Continue to Slide

Despite efforts by record executives to stanch declining CD sales by releasing a cavalcade of big-name artists during the critical Christmas shopping season, early sales figures show an already struggling industry may now be in even worse shape.

In the five weeks since mid-November, when the record labels began their biggest holiday blitz in recent memory, compact disc sales were down 12.9 percent compared to the period in 2001, according to data from Nielsen SoundScan, which tracks music sales.

That poor performance comes even as new CDs from artists like Shania Twain, Mariah Carey, Jay-Z and Paul McCartney have sold well, and has pushed overall sales for the year down further. Through the week ended Dec. 15, the record industry is off 10.8 percent, compared to a year earlier. On Nov. 10, the music business's tally for the year had been down 10.5 percent from 2001, according to Nielsen SoundScan.

Unless there is a crush of last-minute shoppers and bargain-hunters in the week after Christmas, the industry's flood-the-market strategy will have failed, music business analysts say.

"Given the level of star power that's out there, the sales are disappointing," said Michael Nathanson, an analyst at Sanford C. Bernstein. "It's a worrying thing. It doesn't bode well for next year. I can't imagine a line-up like this for next Christmas. It just says that next year is going to be bad."

Industry executives blame the decline on Internet file-sharing and counterfeiting, while consumers complain of a lack of exciting new talent and uninspired music from older artists. Further, a weak economy has forced people to become choosier about how they spend their money and some have decided to spend it on video games and DVD's, music industry analysts say.

Holiday sales have always been important to the music industry — with more than 30 percent of the industry's sales coming in the fourth quarter — and the decline in sales during the season last year prompted executives to be particularly aggressive this year.

But the holiday onslaught appears to have helped only two of the big five record labels increase their overall market share. The Universal Music Group, a subsidiary of Vivendi Universal, has bolstered its already commanding lead and improved its overall market share. During the five-week period ended Dec. 15, its market share rose to 31.2 percent from 28.4 percent for the week ended Nov. 10, according to Nielsen SoundScan. And BMG, a unit of Bertelsmann, increased its share to 17.2 percent from 14.6 percent on Nov. 10.

The news is not so good for the other three major labels. The market share of Sony Music Entertainment, a division of the Sony Corporation, has fallen to 15 percent from 15.7 percent. Warner Music Group, part of AOL Time Warner, has dropped to 14.2 percent from 15.9 percent. And the market share of EMI Recorded Music, part of the EMI Group, has fallen to 7.2 percent from 8.6 percent on Nov. 10.

Despite the glut of music, some artists have prospered. Ms. Twain, the pop country singer, has been one of the biggest successes this season, selling 7.7 million copies of her album, "Up," since its release on Nov. 12. Jay-Z's "The Blueprint2: The Gift and the Curse," on Universal's Roc-A-Fella/Def Jam label, has sold 1.1 million copies between Nov. 12 and Dec. 15. And record buyers have snapped up 462,000 copies of Mr. McCartney's double CD, "Back in the U.S. — Live 2002," on EMI's Capitol records since Nov. 26.

On the diva front, Ms. Carey, on Universal's Island Def Jam label, and Whitney Houston, who records for BMG's Arista label, are also doing decently. Without significant radio play Ms. Carey's album, "Charmbracelet," sold 240,000 copies during its first week — her second biggest debut — and Ms. Houston's comeback album, "Just Whitney," sold 207,000 copies in its debut week.

One surprise hit has come from the R & B singer Aaliyah, who died in a plane crash last year. "I Care 4 U," her collection of hits and unreleased material, sold just under 280,000 copies during its first week of release.

A carefully chosen single has helped propel the album. "We were going to go with a Marvin Gaye remake," said Kedar Massenberg, the president and chief executive officer of Motown Records, a unit of the Universal Music Group. "But when I heard the single, `Miss You,' I told them to switch the single. It was perfect. It's subliminal. It's one of the first times that we had an artist who passed away who was singing about missing you."

One other feature of this year's music season has been a stepped-up effort by the Recording Industry Association of America to combat piracy and bootlegging. The association has increased the number of investigators scouring the sidewalks for illegal street vendors and of those monitoring the Internet for piracy activity, said Hilary B. Rosen, its chief executive.

"We're throwing more at the problem this year than last," Ms. Rosen said. "We are doing seizures at flea markets, stores and universities."

But the trend lines are not providing much holiday cheer. Ms. Rosen declined to speculate if sales would pick up over the next two weeks, but she said that she remains hopeful.

"I'm always going be as optimistic as I possibly can," Ms. Rosen said of the holiday's sales. "There is great music in the stores and these are critical weeks."

Several good points here. The cost of a CD to the record company, is literally pennies. The music industry has degraded with consolation. Doesn't matter the genre, if for example in the late 80's... Guns N' Roses hits big... you sign a bunch of knock off bands and promote them. Then Nirvana, came... anybody with a guitar who could play 3 chords in Seattle was signed. Now they have knock off Brittney Spears and Backstreet Boys' type bands all peddling crap that is formulaic, stale, and unappealing. I don't buy CD's much at all lately. But you won't catch me burning mp3s of Justin Timberlake or Christina Aguillara either. Not worth my time.

Hollywood on the other hand, has realized that selling a dvd for $9-20... with extras, documentary footage is a way to make money in volume. I guarantee that I would be willing to give a band a shot now, only hearing one song, if it was being sold for $5-7, instead of $17. I am not risking that much money on the potential of 11 crap songs.

Another quick point. They chose to eliminate the single. It has been all but phased out. So, they do what is called as bundling. It would be like going to Mcdonald's and being told that you can't buy a small order of fries for $1... you have to order a fish sandwich, a chicken nuggets order, a drink, a big mac, etc... and pay $15... all in order to get the fries you know you will like, but you are iffy on everything else.

They wonder why their business model is failing.

The biggest reason is sound quality. MP3's have poor sound a cd has better sound.

There is a valid point here volume vs unit price. Lower unit price increase volumem Abigger issue for the industry is that they push pop music to the exclusion of other music. The pop music they push is disposible and availible on MTV, and mp3's and nobody cares 6 weeks after the music is released.

The music industry should diversify and lower unit cost to stimulate sales.

Agreed on that one. CD's are far too expensive. Technology and cost of producing and manufacturing a CD have fallen astronomically in the past decade, yet they still retail for the same price. Sorry, no one is going to pay 16-20 bucks for a CD with one song on it they like anymore.. its not going to happen.

When record companies wake up to reality, then they will make some big bucks. Personally, now that digital music is out there, and isn't going into the bottle, what Record execs need to do is change their model to make money from their marketing of the star/performer in a way other than sale of the CD/record. Lets face it, average joe performer gets DIDDLY from the record, they make their cash on tour. The CD is where the music company makes their incredible cut.

So really the label is the "MARKETER" at least from an artists perspective. So why not focus on marketing and away from product? You have the greatest marketing tool at your fingertips, FREE DISTRIBUTION OF MATERIAL, and you can't get out of your old mode to use it! Idiotic. Albumn production is minimal, unless you have some big star where you spend fortunes in arrangments etc, but in general its not insane.

Another reason that the movie companies priced VHS cassettes at $100 or more during the mid 1980s was because their main customers were video rental stores. Knowing that as many as 100 people would rent the same video over time, the movie companies priced the videocassettes at a premium in order to recoup revenues that they feared they were losing. But even at $100, a video store would break even at about 20 rentals and then the rest would be pure profit. I remember contemplating opening a video rental store around 1985 (this was before Blockbuster cornered the market and there were thousands of mom&pop stores around America) but the high start-up price dissuaded me. For in addition to leasing the storefront, it would have costed me around $75,000 to put together a basic 500-title inventory (would have needed multiple copies of popular titles) just to open the doors. As it turned out, some relatives of mine took the idea and opened the store and were driven out of business by the big chains two years later. They barely made enough to break even.

During the 1990s, the movie companies discovered that they could bypass the video stores and the "sell-through" concept was pioneered. Instead of shipping lots of new releases to the big chains like Blockbusters, they started dumping them into retail outlets like Wal-Mart directly to the consumer at a reduced price, hoping to make up in volume what they lost on price. It was a winning bet. Now there are some movies that generate more revenue on video (and now DVD) then box office receipts. In fact, many box office duds have become moneymakers thanks to "sell-through."

Rental stores like Blockbuster's are on borrowed time. They are never going to get over the hassle involved with going down to the store, waiting in line and then having to scramble back before the deadline to drop the movie off in order to avoid late charges. It's a real inconvenience to rent movies. Eventually consumers will either just buy the movie or go "pay-per-view" as cable companies will soon have the infrastructure and the vast amounts of resources to offer pretty much every movie ever made on demand at a reasonable price.

Homemade CD's should sound identical to the original. If they don't sound good, then neither did the original.

I should qualify my earlier statement. CD compiliations made from my existing music collection sound great. That is because I keep the music in .wav format. It's when I rip to MP3 that I start losing some serious quality. I currently RIP at 160kbps (higher bitrates suck up hard drive space too quickly) and that sounds okay, but nothing like the original. Getting MP3s off the web from others is even dicier. It can be difficult to find good quality MP3s on the web.

I've all but given up on listening to music on radio. It's an exercise in frustration. Playlists are so watered down to the lowest common denominator and so narrowly defined that it all starts sounding the same. In fact, songs that were popular five or six years ago are still in heavy rotation today because there is so little new material that is being played. Just this morning, I quickly scanned the FM band in my car and there was the same Everclear and Counting Crows songs that were being played back in 1997.

Even classical music stations have fallen into this trap. Despite the thousands of great compositions out there (that are widely available in multiple recordings), you basically hear the same 40 or 50 short pieces over and over again. Especially Vivaldi's "Four Seasons," Bach's Brandenburgs and Mozart's early symphonies. Any classical piece over 15 minutes tends not to get played so that the station can get those commercials in.

same Everclear and Counting Crows songs that were being played back in 1997
1997? Consider yourself lucky, here in Seattle 107.7 The End is stuck back in '92 with constantly playing Nirvana and Pearl Jam and throwing in an Emineim song once in a while trying to maintain its hipness.
Add to your classical music with Beethoven's "Ode to Joy" -- about the most overplayed piece of all time.
I would listen to more college radio if they would try and put out a consistant product. Following up an old country song with modern rap might sound "cool" to you and show to your friends how eclectic you are, but it makes me change the station.

That's the truth.

GOOD, and I can only hope CD sales continue to slide well after the holiday "buying season". I hate CDs: it seems we
all woke up one morning several years back and found that
vinyl records had gone the way of the dinosaur. It had already been decided for us by the corporate/marketing wizards who began, after the fact, promoting all the wonderful benefits of CDs vs. vinyl. Well, they DO take up
less space (which technically would benefit both producer and consumer) and they are obviously cheaper to produce (using the same technology already taking over the computer software market). But they have ZERO charm as "objects", and
have NO resale value. I recently disposed of an estate for a musician friend of ours whose professional career dated back to the mid-40s. Going through his record collection, I noticed he had about 30 that looked like they might be worth
something.
I called a rare record dealer who started panting as soon as he saw some of these classics, all in virtually perfect condition. He held each disc up at an angle against the light, and started separating them into piles: $100 pile, $50 pile, $20 pile, $10 pile. He offered about $950 for these records. People have connections to these objects they will NEVER have to CDs. One last ray of hope is that if
you look around hard enough, there's some great stuff still to be had for not much money.

You think Blockbuster's rentals are on borrowed time---
I hate to tell you what's going to happen to what I always assumed was a venerable category-killer, TOWER RECORDS.
My daughter has a part time job there (Bergen County NJ),
and they are literally hanging on by a string. Their free music magazine PULSE, will cease publication next month, their employees (who were always paid minimum wage), are being cut back in numbers and asked to do more work in more departments, and many of their stores look like they're on schedule to begin closing one by one over the next few years. The reasons for this are too various to go into here, but some part of it has got be to be tendency to continue branching out and offering more and more (magazines and videos for example) of what others are offering singularly.

There is a Tower Records here in Burlington, MA that I have been going to for years. I have noticed over the past couple of years that traffic in the store has decreased noticeably. It used to be that at Christmas time, the lines snaked through the store. One year I got so fed up waiting in line that I put my merchandise down and walked out. Well when I was there last week, there was no line at all.

My wife and I joke about the "Towering" prices at Tower Records. Their "discounted" prices are usually higher than the full price at the Newbury Comics or Circuit City down the street. The only thing they have going for them is the wide selection. Especially in the classical music section which is walled off from the rest of the store.

I have also noticed that more and more store space is dedicated to books, magazines and "eclectic" games and gifts. They certainly don't seem to be selling a lot of CDs lately.

I get most of my music from Amazon.com these days because you just can't beat the price, even with the shipping charges.

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