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	Sales of Music, Long in Decline, Plunge Sharply A Retailing Shakeout --  By ETHAN SMITH  ,  The Wall Street Journal    March 21 2007   Page A1

(Note from CSA -- The article below, from the Wall Street Journal,  is very important to all musicians.  While it is very bad news for major record companies and "mainstream" music,  it is good news for Indie artists if you know how to navigate these trends.  But most importantly,  it highlights the fact that more than ever,  the fundamental ingredient for music success is not the artist, nor the production, nor the marketing -- it is a well-written, timeless, universal song which can transcend the market trends)

     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  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.

Ethan Smith writes for the Wall Street Journal  at ethan.smith@ wsj.com

          

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