Discs slip

Music retailers challenged as buyers tune into digital download future

Mark Brown, Rocky Mountain News

Saturday, February 4, 2006

Discs slip

They're dropping like flies.

Musicland, the parent company of several music retailing chains, has filed for bankruptcy. Its MediaPlay stores were shuttered last month. Earlier this week, its Sam Goody chain announced the closure of seven CD stores across Colorado and more than 340 similar stores across the nation.

West Coast indie legends such as Rhino Records and Aron's recently have shut down. In Denver, Cheapo Discs has closed two stores.

Ironically, all this bad news follows reports that music sales in 2005 topped a billion units for the first time. But that figure counts every downloaded song with the same weight as a physical CD sale. So despite the record number of units, music industry revenues and CD sales are down.

But digital downloading of music off the Internet is exploding. In 2005, more than 350 million songs were downloaded, a 150 percent jump over 2004. Digital album sales soared by 194 percent.

Put simply: These are brutal days for many traditional music retailers.

"Technology creates winners and losers. This has been a radical shift in distribution, consumption, discovery, all those things," says Paul Resnikoff, founder and editor of Los Angeles-based DigitalMusicNews.com.

Another irony: While sales are down, more music is being produced and heard than ever before in history.

"The overall trend is this migration away from the physical disc," Resnikoff says. "There's less demand for it. It's not that coveted prize anymore."

All these developments beg the question: What will CD stores be in 10 years?

"If you can tell me where this is going you're worth a zillion dollars. I've never felt the need for a crystal ball as much as I have now," Twist and Shout owner Paul Epstein says. "Things are changing at such a breakneck rate. It's not just the technology. It's the financial underpinnings of that technology."

The basic music fan still wants the same thing: Good music at a good price, easily obtained and playable wherever they want.

"The original CD met all those criteria," Epstein says. "You were able to put it to cassette. In the last few years you can do it on another CD and play it on your computer or play it in your car."

But in the face of digital downloading, the industry has moved away from that.

"This has been one of the great cases of an industry thinking itself to death," Epstein says.

The industry response has been to try to control an uncontrollable digital world. Sony Music came under blistering fire from fans and artists recently when the company released CDs with copy control and spyware on them. Fans get mad when they pay to legally download a song then find it's not compatible with their car, portable or computer players.

The Recording Industry Association of America earlier this week announced yet another round of file-sharing lawsuits against 750 fans uploading music. Since the RIAA started such suits, illegal downloading has actually increased rather than dropped.

"The record industry has thrived on control for the past five or six decades," Resnikoff says. "It has basically been able to control manufacturing, distribution, artists' careers, contracts, how you consume music, how it's playable, where the revenue stream would go, how much you pay for CDs, when the CD came out, when the music was released.

"Suddenly the rug is getting ripped out underneath that. The control component is totally gone."

A musical hub

While the music industry's power wanes, control is going back to the consumer and musical artist.

"Music fans feel this is a golden age. They can subscribe to satellite radio. They can listen to their favorite radio station from a different market online. They're listening to more music than they have in years," says Michael Bracy, policy director for the Future of Music Coalition.

"The iPod has obviously completely changed the way people relate to their own music collection. People are rediscovering records they haven't thought about in 15 years."

Bracy suggests stores need to return to being "the social hub where people can come together to not only support the music community with their consumer money, but also be turned onto new music, talk to knowledgeable record clerks saying 'This is the new band you should be listening to, this is the local band that deserves your support.' "

That "social" aspect becomes increasingly important for smaller, independently owned stores that must do battle with big-box retailers such as Best Buy and Wal-Mart. Those chains can afford to price CDs low and lose money on them, because they bring people into their stores who then buy other items.

"It's impossible to compete on price with the loss leaders at department stores or electronic stores. You'd be crazy to do that," says Geoff Mayfield, Billboard magazine's director of charts/senior analyst.

"What (stores like Twist and Shout) can give you is what was recently referred to at a music convention was 'the Jack Black' — the character he played in that movie (Hi Fidelity) about the record store — the guy who turns you on to music," Mayfield says.

"iTunes can suggest. It can say 'If you bought this you'd like that.' But it's not the same. There's something to be said for the combination of virtual inventory and someone to help guide you to the kind of stuff you might be interested in."

The latest ideas

Competition from other entertainment, including on-demand TV and video games, has long been blamed for the music industry's woes.

"I'm certainly no happier with all this choice. What it has done is muddy the market," Epstein says. "It has made it very difficult for anything to rise above the din of the constant stimulation of and integration of music, movies, games, the 24-hour cable cycles, all this stuff has made everything immediately important and just as quickly disposable.

"Everyone's creating their own cultural bubble. They don't care what anyone else thinks. It's cool that everybody has the choice, but it takes the idea of quality control, critical taste and commentary out of the mix."

To compete, Epstein envisions almost anything:

• Instantaneous wireless downloads of any song available, to go to an iPod or quickly burn to disc? Sure.

• In-store performances by bands that are then instantly sold to fans? Absolutely.

"The thing that got me going on that was (in 2005) our No. 1-selling album was a local album, and at least five records in our top 100 for the year were local," Epstein says.

"We succeeded with The Fray, Matson Jones, the Trampolines, a bunch of these local bands. That's what gave me this idea. 'Gee, if we could do an in-store, have the kids come in, buy a ticket that would get them the actual concert experience, a recording of the concert experience, maybe a poster — that's a real value."

"Yep. Yep. Those are the big ones," Bracy says of Epstein's ideas. "The in-store idea is brilliant. I would assume you're gonna see partnerships with local clubs, local venues to give you that same thing."

Bands can work with clubs to make recordings of shows available and "a lot of fans would be more than happy to pay 12 bucks to recapture that show," Bracy says. "You could have a whole club's archive via a partner in retail."

Resnikoff leans toward "the whole concept of music ubiquity — the ability to grab music wherever you want, wherever you are, in your car or on your cell phone. This digital jukebox in the sky is a feasible idea."

The convergence of broadband, bigger hard drives in iPods, phones and cars and wireless technology will continue to shift the playing field.

"The big experiment of the next couple of years is wi-max or wi-fi everywhere, in which you're able to catch a broadband connection wherever you want," Resnikoff says. "Imagine if wi-fi were as easy to get as a mobile phone connection. If there was connectivity everywhere it now suddenly changes everything. Now you can have access to your MP3 collection on the road trip without having to bring your CDs or bring your iPod or anything. It also means you have access to online radio stations in your car or on the go.

"These things sound a little crazy now," Resnikoff says, "but the idea of wireless broadband connectivity sounded like it belonged to a foreign language six years ago."

The next store

Wax Trax, a Capitol Hill music retail institution, has stubbornly refused to diversify in its 27 years of business.

"We're kinda old fashioned. Plus we're afraid of change," says owner Duane Davis with a laugh. "We have a hard time saying 'OK, the writing's on the wall, it's time for us to read it.' We like doing what we've always done and what we did best."

That unwillingness to change has come at a price. "We have seen tremendous shrinkage in the customer base. The number of people who come in to buy music is a shadow of what it was at the peak, say, '86 to '90. It has just gradually eroded."

It's not that Davis wasn't aware of it, he just wasn't interested in anything but music.

"Our thing was always music. Back in the heyday people would come in constantly and say 'You know, you ought to get into comic books. We could put a rack of comic books over here.' Well, I don't know (anything) about comics so we're not going to do it. I used that space to sell some more Joy Division or something like that," Davis says.

The few peripherals he did have (DVDs, T-shirts) were sold in the Across the Trax annex, which recently closed after 19 years because of the same dwindling customer base.

Wax Trax has found success selling old vinyl through its online store at eBay and at waxtraxrecords.com, shipping all over the world, Davis says.

Mayfield says there's a technological reason why music retailers still have a future: "There are a lot of consumers out there, believe it or not, that don't own an iPod or even a computer.

"It's easy for a lot of us to forget the socio-economic thing. There's a lot more broadband now than there was five years ago. But I also remember that the time when the CD became the dominant moneymaker in music that fewer than half of US households had a CD player.

"You pretty much take for granted that everyone has a computer and can load up iTunes or Sony Connect. Not everyone can do that."

That notion's supported by a study released this week by The Associated Press and Rolling Stone, which found that more than half of music listeners still buy CDs from specialty CD stores, while the other half buy at places like Best Buy and Wal-Mart. And FM radio continues to be the way fans of all ages find new music.

Angelo's is a local chain of stores, owned for 16 years by Angelo Coiro, which recently expanded into a fourth location. Diversification has been the key; Angelo's carries more movies than Blockbuster, Coiro says, as well as plenty of vinyl, skateboard equipment, video games and other peripherals.

"We're going to start carrying iPods. A lot of our customers burn stuff. Might as well capture part of that market," he says.

A big key, however, has been the customer loyalty incentive program. It's the same idea as a Quizno's card. At Angelos when you buy 14 CDs, you get one free. For true music fans that adds up quickly.

"It's huge. If I got rid of that program I don't know if I'd be sitting here talking to you," Coiro says. "There's a lot of customer loyalty with that."

Kids come in asking about the free CD program after hearing about it from friends; more than 23,000 CDs have been given away through the program.

Epstein, who offers a variety of merchandise at Twist and Shout's Alameda store, isn't giving up on the physical store, either. This summer a new Twist and Shout will open in a development with Tattered Cover at the old Lowenstein Theatre. But he knows it can't be business as usual for music stores in the future.

"I see it as some sort of hybrid of cutting-edge technology and old-school feel — almost a museum. It's going to be a place where people can remind themselves of what turned them on to music and where newer consumers can avail themselves of the latest technology," Epstein says.

"I think if you walk into Twist and Shout in 10 years you'll see a marriage of new technology and old values. More (listening) kiosks, more burning capabilities, more reference and resource and customer service in terms of helping people make those choices. But there'll also be the physical world for those who are still there."

Mark Brown is the popular music critic. Brownm@RockyMountainNews.com or 303-892-2674