Feb. 10, 2006
 
CD Retailers Grapple with Digital Future
 
By Mark Brown
Scripps Howard News Service
 
Denver, CO -- 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. Its Sam Goody chain announced the closure of more than 340 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 raise 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," Paul Epstein, owner of Denver's Twist and Shout music store, says. "Things are changing at such a breakneck rate. It's not just the technology. It's the financial underpinnings of that technology."
 
The recording 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. 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."
 
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. 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.
 
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."
 
Mayfield, though, cautions about putting too much emphasis on technology: "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.
 
Contact Mark Brown of the Rocky Mountain News at http://www.rockymountainnews.com