Idolator
Reports are surfacing that that the three stores that make up the bulk of CD sales right now—Best Buy, Wal-Mart, and Target—are planning to dramatically scale back their music sections after the holiday season, thanks to executives believing that the CD market is in "permanent decline" and that sales will drop even faster next year than they did in 2007. Cutbacks are expected to be in the 20% to 40% range, and the Silicon Alley Insider has a rough estimate of what that could mean for the music industry:
Assume that the retailer cutbacks come in the lower side, say, 25%. Assume that those sales drops are somewhat mitigated by digital sales and by die-hard CD buyers who seek out discs at other outlets, like Amazon—and call it a 20% sales drop. The U.S. is a third of global music market, and the retail cutback won't affect the rest of the world, so the decline there shouldn't be as steep — say, 10%. That's still a 14% drop industrywide (that number would vary depending on how much exposure a big label has to the U.S.)
But a retail cutback could be much more damaging than any single year revenue decline. In a worst-case scenario, and one we think is quite likely, a cutback sets off a self-fulfilling prophecy: Retailers stock less music, so consumers have less to choose from, and then buy even less, causing retailers to stock even less. Repeat.
The only good news for the big labels: They see it coming, and are scrambling as fast as they can to adapt. The bad news: There's little they can do.
The only consolation? The big-box stores are pulling back the floor space they devote to DVDs, too. OK, that probably doesn't make the music industry feel better. But the plan as outlined by SAI—and the likely scenario of less choice resulting in fewer purchases, thus helping that predicted decline along—makes me wonder how much more important jockeying for those few spaces in big-box stores' aisles will become. Will artists' and labels' rush to offer exclusive extras and special editions for big-box shoppers, which has angered some people in the past, will finally peter out, or will "special editions" turn into the only way that labels can assure space for their wares on those stores' shelves?
Music Decline to Accelerate in 2008 With Retailer Cutbacks [Silicon Alley Insider]
[Photo: Soctech]
Comments
that's how it will go down, and that's been the case all decade. one reason album sales have dropped so mightily this decade is a very simple numbers game: fewer retailers mean lower sales.
@coolfer: Right on -- and following up: There's one theory out there that the entire reason for the big sales drop in 2007 is the dissolution of Tower Records.
Basically, this theory holds that the industry probably would've seen another single-digit drop this year, as it has every year since 2001 (usually it's been anywhere from 3% to 8%); but that the extra 8-10% we're getting -- the final number will likely be 14-15% by year's end -- is the Tower differential.
So, take the big boxes out of the equation after Christmas, and the delta from 2007 to 2008 could be more like 20%, all in. *(winces)*
Luckily, this will not affect my bands' ability to sell CDs out of their trunk.
I find the selection at all of those places suck anyways; Zia records s the only place I go, and I guess they're doing so well, they are actually expanding in Vegas of all things. Two fucking locations.
Interesting stats and analysis, and I would guess that some of the numbers being bandied about will be proven right. I'm not sure I would be as "pessimistic" as dennisobell [-20% YOY], mostly because I believe the cutbacks won't be as deep [-40% floor space??? really?] as everyone fears.
The main reason I say that is that at these outlets CDs and DVDs are largely treated as "loss leaders" anyway, priced low to lure *some* buyers in to spend even more money on other products. For Best Buy, certainly, and to a lesser degree for the general merchandise big boxes, some meaningful portion of those "extra" purchases are for higher-margin CD/DVD playback devices, such as portables, car stereos, home entertainment systems, etc., as well as PMPs to which the music can be ported. Something has to be available to play on/in those devices, so why not make it conveniently available for the guy who just bought a new car stereo? Having said that, I'm sure, as everyone has already predicted, the floor space devoted to pre-recorded media will decline, while the space devoted to recordable media will rise [as will the space devoted to higher-margin and/or better-selling merch]. I'm just not sure I can go as "high" as 40%, especially if you factor in the space devoted to blank media and recording devices [which the article doesn't cover].
And none of this bothers me, and it really shouldn't bother us much at all [N.B.: I would guess that the crowd that hangs out here doesn't buy too many CDs from these boxes anyway]. Most of the CD floor space at these boxes is taken up by extremely mainstream current and back catalog releases. And that's because that's what sells at these boxes. And that's also why I think dennisobell might be a little "pessimistic" with his YOY numbers. There will be less space devoted to CDs, yes, and most of what will disappear is less-mainstream, low-sales product, yes, and that means there will be less choice available for consumers at that store. But I suspect consumers looking for rarer or less-mainstream titles will know how to find them elsewhere, and Best Buy and their ilk will continue to sell lots and lots of copies of All The Right Reasons and The Dutchess.
The music industry's allegience to big-box stores is half the reason it is so out of touch with the fans and the art form. There was a time when the labels needed the fans, and needed the record stores. But in the 90s the labels became so dependent on grocery stores that their priorities got all screwed up, and have never been straightened out. It'll probably be catastrophic for the industry-as-we-know-it, but music will be better off if no one depends on grocery store sales.
@DHMBIB: Sorry to add more words to my blowhardy-blog above...
I also meant to note that this article deals specifically with floor space. With improvements in technology and inventory management, it's increasingly easier to devote less floor (and storeroom) space to physical product -- thus making room for more of a different product, offering consumers other choices -- and simply reorder and/or restock as product on the floor actually sells. Put another way, if a particular Best Buy predicts that it will sell around 100 copies of All The Right Reasons in a given week, there's no reason it has to keep 100 -- or 50, or 25 -- on the floor at all times. Some copies can be "in the back", and others can be ordered for delivery tomorrow. That's another reason why I think it's a stretch to go from "40% less floor space at the big boxes" to upwards of 20% sales decline.
But please note -- I do agree with the hypothesis that the CD sales decline we've seen in the last 12-18 months will accelerate next year. I also know that these declining sales are causing retailers to choose to devote more floor space to higher-selling, higher-margin products. I'm just not sure about the causal relationship between taking away floor space and the subsequent sales or non-sales of CDs.
I predict that in five years time, the only place you'll be able to buy a new CD will be at indie-owned music stores. Buying new CDs will be like going to a comic book store to buy comics: It will be a specialized shopping experience that caters to the aficionado and not the mainstream consumer. Overall, maybe it's for the best that the Major Labels are run like comic book publishers.
My local Target stocks maybe 100 rock/pop titles at a given time (including catalog) to begin with. Now they're going to cut down to 60? Maybe they're just planning on cutting out the superfluous Christian/Latino/comedy aisle that I've never once seen anybody go down.
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