Time to face the music: NARM identifies industry's biggest problems, best solutions

DSN Retailing Today, April 7, 2003 by Laura Heller

ORLANDO -- Citing French intellectuals may not be the most timely method for opening a trade show these days, but at the National Association of Recording Merchandisers' (NARM) 45th annual convention last month, NAIRM president Pamela Horowitz used the words of French poet Andre Gide to describe the future of the industry: "One doesn't discover new land without consenting to lose sight of the shore for quite a long time." True to her intentions, the remarks effectively summed up the position that both the music industry and its retailers are facing today.

Digital downloading, piracy, outdated business models, consolidation and pricing issues are consuming this business as sales of recorded music continue to decline and everyone tries to shore up losses and chart a new path to a once-again profitable business.

"We've made this voyage before as an industry," said Horowitz. "In fact, we make this voyage every time there's an intersection between a new technology and the commerce of ideas. Despite the doom and gloom predictions all around us, the promise of the computer, the Internet and the digital distribution of music will eventually be realized."

Every time cultural materials such as movies and music have been made more widely available to the public, profits and new business have grown as well, pointed out Horowitz. A statement confirmed by the advent of CDs, videotape and now DVD. Digital music files should be no exception.

In fact, there's evidence that people who download music from the Internet are more likely to purchase CDs, according to Matt Kleinschmidt, director of Ipsos-Reid Research. "Someone who has purchased two or more CDs in the last 30 days was more likely to have downloaded music," he said. Downloaders - are also more likely to buy at specialty and CE retailers than discount department stores.

Music sampling online is apparently spurring interest in music, but one barrier to traditional CD sales continues to be price, as most consumers and retailers believe the current pricing structure is too high and restricting sales. It's an issue Best Buy was pushing hard at NARM.

"The biggest issue within this industry is the denial that the value equation is broken," said Gary Arnold, senior vp of entertainment, Best Buy Consumers are simply not willing to pay $18 to $20 for a CD with less than 45 minutes of music and the possibility of liking only a handful of songs on the disc. The advent of downloading has allowed them to pick and choose tracks and customize music selections, but the popularity of DVD has also exposed them to a product that delivers more for the money.

"Consumers are now making comparisons between DVI) and CD," said Arnold. Compared to the extra-packed video discs with 200-plus-minute movies, interviews, outtakes and interactive options, a 38-minute CD is coming up short, particularly since both formats retail for roughly the same price.

Enter DVD audio, now competing with Super Audio for the honor of being next the new format. DVI) Audio has clearly taken the lead as the format is an extension of the existing DVD platform-product can be played interchangeably with DVD movies and consumers can still utilize the new format with the installed base of existing technology.

DVD Audio can incorporate video and boast extras, offering a new value equation, according to proponents like Arnold. 'The CD is dead," he said. 'The new carrier of content is DVI)."

The retailer is also asking record labels to implement a new pricing structure with lower prices on new releases, increased promotional discounts and a new method of disposing of overstock at the store level rather than returning product to its source and carrying the associated expenses.

"It's essential that they're willing to change and let go of business models that haven't worked in a long time," said Arnold. As for the progress made after two days of meetings at NARM? "I'm very encouraged," he said.