August 3, 2006
Nervous music retailers face hazy digital future
by Chris Morris
As Margo Channing said in "All About Eve," fasten your seat belts.
The National Association of Recording Merchandisers convention begins in earnest today at the Gaylord Palms Resort in Kissimmee, Fla., with a morning opening address by NARM president Jim Donio and a keynote speech by Chris Sacca, head of business development at Google.
Many attendees at the 48th annual confab for music retailers likely will be wondering if they are staring into the abyss.
The record business has weathered crises in the past: The '90s saw massive consolidation at labels and music chains alike, and distributors and retailers were rocked -- frequently into bankruptcy -- by the violent contraction of the business. But with the rise of the digital universe, merchants and labels have moved into terra incognita.
Last week's numbers were not pretty. According to Nielsen SoundScan figures, physical album sales were the lowest they've been since January 1994; as of the week ending July 25, CD sales had dropped 7.8% for the year. While the sale of digital albums has grown by almost 123% in 2006, the development of that sector so far is not keeping pace with the decline of physical product; adding in equivalent digital albums, the business overall remains down 0.7% this year.
Oh, brave new world.
Music sellers are experiencing something they never have before. The universe they're accustomed to -- the world of physical product -- is on the wane, even though it still accounts for 90% of all music sales. The age of digital sales already has dawned, but things are still hazy on the horizon.
"Some people feel stuck," Donio says. "It's like Dorothy with the Scarecrow in 'The Wizard of Oz.' Which way? You can go this way or you can go this way. Everybody wants to get to Oz. Which is the best way to go? The Scarecrow pointed in both directions. It's tough, and I don't envy the challenges."
He adds, "It's a very odd moment in time. Any business that's going to be successful has got to have parallel paths going on."
To help retailers cope with the explosive changes in the marketplace, NARM is mounting several panels this year that will attempt to enlighten brick-and-mortar merchants about potential partnerships for the digital age. Following Sacca's keynote, a panel today will feature representatives from digital kiosk firm Mix & Burn, mobile music company Groove Mobile and management/marketing firm World's Fair. On Saturday, TAG Strategic consultant and digital music guru Ted Cohen will moderate a sit-down with such forward-looking operations as XM Satellite Radio, AOL Music, Sprint Nextel, Motorola and the Orchard.
The theme at NARM this year would appear to be the necessity of integrating the future into the music retail store as it exists today. That's a sizable universe: According to the Almighty Institute of Music Retail, a Studio City-based store tracker, there are still 2,600 chain stores and 2,900 independent storefronts in the U.S.
Despite all the current hand-wringing, Donio doesn't see music retailing disappearing anytime soon. He notes that five years ago, analysts predicted the imminent demise of brick-and-mortar operators. "There are fewer stores, that's true," he says, "but people still like to shop in stores.
"There will always be a position, a role, from a retailer's perspective," Donio concludes. "What that looks like -- I don't know that anybody could draw that picture."
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