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Digitizing The Record Industry

Retail Realities & the Road to Profits
By The G-Man,

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If you're young enough, all you know is digital music. Forget about records. Or vinyl. Or eight-tracks. Or even cassettes. To these people, the brouhaha over digital rights management and pay-per-download models seems silly. And the changeover from physical products to sound files isn't even an issue for them.

Yet there is a multibillion-dollar business that is turning itself inside-out because of computerized data-capture of sonics (or whatever the new buzzwords may be to describe how machines glom onto sounds and let humans share them).

People On The Inside

The National Association of Record Industry Professionals (NARIP) assembled a panel of experts on March 30th who live and breathe digital retailing of music. Brad Duea is President of Roxio's Napster ("the new Napster"). Kevin Ertell is Vice President of Online Operations for Tower Records. David Micko has the coolest title: Innovation Evangelist, Consumer Technology and Strategic Services for Best Buy. And Mark Tindle is Sr. VP and West Coast General Manager for Nielsen Music (which includes Nielsen SoundScan and Nielsen Broadcast Data Systems).

The panelists were in-the-know and willing to share their insights, yet there was an air of tension that began building after the first few minutes of the discussion. Why? Well, because of the focus of the panel on retail, both brick-and-mortar and digital distribution. We're talking paying customers here. (But remember that the tension is building -- more on this in a moment.)

Some highlights:

* Napster's Duea, extremely upbeat about the new technologies that are seemingly introduced every week, noted that their online sales were actually "in line with traditional physical sales." In addition to moving singles and albums, Napster is licensing its name and in some cases helping to market a large line of products, everything from blank recording media to prepaid phone cards.

* Tower's Ertell reflects the optimism of many who look forward to even more exciting changes in the industry. "Global sales are growing," he notes, and points out that price points for singles, albums, and "hot tracks" vs. back-catalog items have yet to be determined. He also identified an interesting trend, that %19 of digital sales are classical, which represents substantial growth.

* Best Buy's Micko echoed the optimism (redoubled it, actually) by pointing out that "Technologically, we're close to the celestial jukebox... the technology is there," he said, but added "whether there's a business model that works is another question." On the other hand, he notes that the old-fashioned large record company business model "cannot exist" any longer. He drew appreciative laughter when answering NARIP President and panel moderator Tess Taylor's question about the profits that retailers achieve by selling prime shelf space: "Shelf space allotment is like crack cocaine to Best Buy," he said.

* Nielsen's Tindle drew the biggest laugh of the evening when he followed the comments about the feasibility of the celestial jukebox by saying, "I just want a cell phone that works in Cahuenga Pass." The nature of his business is to observe and measure consumer buying patterns, so his view that the record industry business is "still being driven by physical sales" was surprising to some. "There were 2.1 million paid downloads of music last week," he said. "It's growing, but the overall sales are still relatively small." According to him and to Nielsen SoundScan figures, there have been more than 25 million legitimate PAID digital downloads in the first quarter of 2004.

The Dam Bursts

Somewhere around this moment, the tension had built up to a point of no return. It was only a question of who would speak first. It was Dave Adelson, Managing Editor of HITS magazine and E! Entertainment reporter who finally acknowledged what was on everybody's mind...

"You haven't addressed the issue of peer-to-peer music distribution," he pointed out. "You talk about 2.1 million paid downloads, but there are literally 10 billion P-to-P downloads going on."

"You mean stealing," said attorney Susan Rabin. "You tell 'em, Dave," said several people, and the packed ballroom was suddenly quite noisy.

Taylor let the points be made and then firmly guided the discussion back to the topic of "retail, which means legal sales."

The Real Bottom Line

With a wonderful mix of ideas, questions, predictions, and suggestions about the future of music distribution in a computerized era, the "Digitizing the Record Industry" panel was a hit.

Provided by the MusicDish Network. Copyright © Tag It 2004 - Republished with Permission



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