Music Industry Fears
Bad Tidings in Slowing CD Sales
By ETHAN SMITH
Staff Reporter of THE WALL STREET JOURNAL
November 19, 2004; Page B1
Rapper Eminem dazzled the music industry when his new album, "Encore," released last Friday, sold 711,000 copies. Those sales, tallied by Nielsen SoundScan, are considered impressive for a full week. Eminem moved the total in just the first three days.
Music executives have been cheered by signs, in the Eminem release and elsewhere, that their industry's demise has been overstated. In almost every week of the first nine months of 2004, U.S. music sales outpaced those for the year-earlier week. After three years of sales declines, a recovery finally seemed to be at hand.
But as the music industry heads into the crucial holiday shopping season, some executives are worried that the bottom is falling out of their nascent recovery. For the past nine weeks running, weekly music sales have lagged behind sales for the year-ago week, sometimes by as much as 20%. Even Eminem's strong showing couldn't pull total sales last week ahead of the 2003 tally. To date, album sales for 2004 are running ahead of last year by slightly more than 5% -- marking a significant loss of steam compared with August, when album sales were ahead 8.8%.
The fourth quarter is more crucial than ever this year for global music companies. EMI Group PLC, Warner Music Group, Vivendi Universal SA's Universal Music Group and Sony Corp. and Bertelsmann AG's Sony BMG Music Entertainment are watching to see if the tactics they deployed to pull them out of a long tailspin are having any effect. During the past year, they have sued people who they allege are trading online in pirated copies of their offerings, as well as cut prices and trimmed staff trying to stay profitable.
Eminem's album, on Universal's Interscope label, is just the first in a crush of high-wattage artists releasing albums during the fourth quarter, when the music industry rings up as much as 40% of its annual retail sales. Among the big acts with albums just out or coming soon are U2, whose "How to Dismantle an Atomic Bomb" arrives next week; rapper Ludacris; country-pop singer Shania Twain and Gwen Stefani, formerly of the pop-rock band No Doubt and now a solo artist.
Even long-gone acts, such as Nirvana and the Beatles, have boxed sets in the pipeline, thanks to music company marketing departments and their endless ability to recycle old material. Similarly, rapper Jay-Z, who less than a year ago announced his retirement from making new albums, is planning on Nov. 30 to release "Collision Course," a CD-DVD combination on which he performs live backed by the band Linkin Park.
Now, the hope is that Eminem and the others can set the industry back on course. It may be a long shot. For one thing, there is the threat of piracy. Eminem's album was rushed into stores to pre-empt content that had been leaked online. Other artists have been forced to do the same: R&B trio Destiny's Child and rapper Snoop Dogg also had their discs pushed into stores ahead of schedule by their labels -- a phenomenon retailers say can upend a carefully planned release-date strategy.
As a result, "you haven't had that huge event launch day for some of the larger releases," says Dave Alder, chief marketing officer at Virgin Entertainment Group U.S., which operates Virgin Megastores for Virgin Group Ltd. It isn't clear whether there will be more release-date scrambles to come. Interscope has sent copies of the new U2 album to radio stations early, but for now it hasn't announced plans to move the retail release up from Tuesday.
The real trouble is in the vast middle part of the album chart. The top 10 albums last week actually have sold more than the top 10 albums in the same week a year ago, points out Geoff Mayfield, director of charts at Billboard magazine. It is the next 190 entries in the Billboard 200 album chart that are lagging behind. Earlier in the year, that trend was flipped: The top 10 albums were faring relatively poorly while overall sales were strong, driving a broad recovery.
"I can't put my finger on what happened to the middle of the business," says Joe Nardone Jr., who owns and operates an 11-store chain, Gallery of Sound, in Pennsylvania. Mr. Nardone theorizes that lackluster chart toppers from earlier in the year -- including acts such as Ryan Cabrera, LL Cool J, Good Charlotte, Sum 41 and Jill Scott -- now constitute the lackluster middle. "They never started out great, and they've stayed at some mediocre level," Mr. Nardone says. Acts that earlier in the year seemed ready to break out, such as Los Lonely Boys, a Texas blues-rock trio, have had second singles that failed to get significant play on radio stations, leading to stalled album sales.
Others see mixed signals in expectations of strong sales for videogames and digital music players. Music companies stand to benefit from strong sales of music players, as people who get the devices as gifts spend money to load them with content. But probable hit DVDs, including the most recent Harry Potter film and "Seinfeld" TV episodes, and videogames such as "Grand Theft Auto San Andreas," may hurt music sales, as customers are distracted from music.
Nonetheless, there still are some optimists. "We're expecting a good quarter," says John Sullivan, executive vice president and chief financial officer of Trans World Entertainment Corp., which operates the FYE, Coconuts and Wherehouse music chains in the Northeast. "When the year's over, I think we'll beat 2003."
Heavier-than-usual discounting is a factor, too. Many mass merchants have dropped prices on a growing list of new releases to $9.99 and $8.99, fueling unit sales for the top 10 but potentially cutting profitability. Virgin and other specialty chains have struggled to compete. Virgin's Mr. Alder says his stores are offering shoppers who spend $50 a booklet of coupons valued at $1,000 in discounts at Virgin stores and related outlets, such as Virgin Atlantic Airways.
Billboard's Mr. Mayfield predicts that 2004 sales will end up ahead of last year's, but only by a margin of two to three percentage points. "While that's not as good as the 8%, we were ahead in the middle of the year, being ahead at all is still something to celebrate after three years of declines," he adds.
