Download TKO

Sales for No. 1 albums show the song-collections format is on the ropes.

By Joe Gross
AMERICAN-STATESMAN STAFF
Thursday, February 08, 2007

"Nobody knows anything."

— screenwriter William Goldman talking about the movie business, but it can be applied to the music business as well.

On Jan. 17, the music industry witnessed something many once thought impossible: The soundtrack to the movie "Dreamgirls" reached No. 1 on the Billboard charts after selling a mere 66,000 albums, according to Nielsen SoundScan. This was the lowest number for any album reaching such chart heights. The same album broke its own grim record the next week, selling an even lower 60,000 copies.

By contrast, in 2000, Nelly's album "Country Grammar" debuted at No. 1 with 252,000 copies sold.

Though CDs still make up the majority of music business sales, there's little question that over the long term the physical album — even the concept of the album at all — is on the ropes. Record stores are disappearing, limiting shoppers' ability to find a wide variety of CDs. And while most CDs offer 80 minutes of music by one artist for about $18, digital media offer far greater flexibility, portability and consumer control, offering literally millions of songs at a variety of prices, storable on a player smaller than a cigarette pack.

It's not that the American public likes music less. Billboard recently noted that digital album, song, video and single sales over the 2006 Christmas week amounted to 47.4 million units, which is more than in the same period in 2000, when U.S. album sales — meaning CDs — peaked with more than 940 million sold.

In other words, people are still buying music. They just aren't buying artists' pre-determined collections of songs as much as they used to.

Jay Frank is the head of programming and label relations at Yahoo Music. He's in charge of acquiring music for Yahoo's customizable Web radio station (music.yahoo.com) and tracks the popularity of songs that consumers are choosing to listen to.

"There is still this wisdom at labels that if they have the desire for something to become a hit, it will become a hit," Frank says. "That's just not the case anymore."

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"The Rich Man's Eight-Track Tape"

— title of the rock band Big Black's 1987 CD anthology of its LP "Atomizer," EP "Headache" and seven-inch single "Heartbeat"

The compact disc was introduced in 1982 to a record business that had hit a nasty slump in the late 1970s. In nearly every way, the CD seemed like a godsend.

Consumers embraced the CD's lack of surface noise, portability and apparent sturdiness. Record companies loved the fact that suddenly seemingly everyone wanted to replace their old albums with CDs, despite CDs being priced higher than LPs and cassettes.

The boom lasted until about 2000, the year Napster went from being a dorm-room experiment to the most talked-about site on the Internet. The industry hasn't been quite the same since.

After years of blockbuster growth, CD sales started to drop and everyone tried to figure out why. Some blamed the list price, which hovers at $17.98 for a major artist's new CD. Waterloo Records owner John Kunz thinks record companies had a chance to get in front of this issue and didn't take it. "I think the price of CDs should have come down 10 years ago," Kunz says. "For a long time, CDs were the only format. That was the time labels really could have come down on the price. If they had done that, I don't know if they would have had the woes they are expressing now."

The Recording Industry Artists of America was quick to point the finger at file trading. After all, by its 2001 peak, digital file-sharing pioneer Napster was clocking more than 24 million users. While the original Napster was sued out of existence in 2002, for-profit digital music services such as iTunes and eMusic were more than willing to step into the void, this time with record company approval. Suddenly iPods were everywhere.

In a March 2004 study called "Effect of File Sharing on Record Sales: An Empirical Analysis," two researchers at Harvard Business School and the University of North Carolina at Chapel Hill concluded that sharing digital music files had, well, no effect on CD sales at all. Harvard's Felix Oberholzer-Gee and Koleman Strumpf of UNC used as their base 1.75 million downloads over 17 weeks in 2002. Then they measured if sales on a given album fell in relation to the frequency of songs downloaded from that album on file-sharing services such as Kazaa.

Nope. "Downloads have an effect on sales which is statistically indistinguishable from zero" were the exact words the researchers used.

It should be noted that Apple iTunes, the digital media application that has become synonymous with online music sales, was introduced in 2001 and made available for Windows in 2003, the latter of which occurred after the study took place.

And it's not as if those using download services such as iTunes and eMusic are buying whole albums as they would at a store. Noting that if one uses the SoundScan equivalent of 10 tracks per album — a conservative number considering most CDs have more than 10 tracks — Billboard stated recently that total sales equaled 111.4 million albums for the time between Thanksgiving and Christmas, which is a 2.1 percent decline from last year's 113.8 million.

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So at this point, what does the CD offer consumers that a digital download doesn't?

On the surface, not much. Artists have no qualms about filling up CDs with as many songs as possible. But as the popularity of single-track sales has shown, it seems that consumers want less of any given artist at any one time, not more.

"Instead of being forced to buy nine bad songs so that the customer could get one good song," says Jerry Goolsby, the Hilton/Baldridge Distinguished Chair in Music Industry Studies at Loyola University, "iTunes has made it easy to just obtain the one song the customer wants."

Don Gorder is the founder and chair of the Music Business and Management Department at Berklee College of Music. He says he would not encourage new Berklee music students to think of the physical copy as the thing on which to build their business. A lot of this has to do with a simple lack of places to find lots of different CDs.

"People are finding ways to get their music that no longer includes going down to the record store," Gorder says. "To a certain extent it's not by choice. There are just far fewer stores."

In a major portion of the country there are only two ways of buying CDs: Wal-Mart and Amazon.com. "Wal-Mart doesn't do deep catalog," Gorder adds. "So if you want something that isn't a brand-new album, you have to go online, place your order and wait for the mail."

"The record industry has a notion that if the local store closes, people will go two miles down the road," says Yahoo's Frank. "Not only is that not true anymore with the rise of digital sales, but that second store is increasingly not there at all."

Digital downloads allow consumers to order exactly what they want at the very moment they want it, artist intentions be damned.

And even if you still believe in the album as a whole statement, some record labels have simply eliminated physical copies altogether. Anthology Recordings (anthologyrecordings.com) is the first all-digital reissue label, founded by Keith Abrahamsson, an A&R executive with New York City-based indie label Kemado Records.

He noticed that many obscure albums he liked weren't available on digital services such as eMusic and iTunes. Anthology, which launched in 2006, allows users to download single tracks, full albums, original artwork and often brand-new liner notes, offering fully licensed, royalty-paying digital downloads of albums that were never offered digitally, are out of print on CD or, in some cases, never made it from the original LP release to CD at all. And Anthology has none of the printing, packaging, storage or shipping costs of a normal reissue label.

"For me, the LP is the format," Abrahamsson says. "There is no difference when it comes to CD or digital download. I think that ultimately all that's going to survive are vinyl and digital downloads." In other words, vinyl will appeal to audiophiles and DJs while everyone else will use digital downloads. The CD will, as Big Black noted, go the way of the eight-track.

So why are CDs still here at all?

According to Jay Woods, an executive with Austin-based New West Records, "We're cautious about going all digital because our target market for most of the titles we sell, such as the new Ricki Lee Jones album, still want that CD in their hand," he says. "Younger fans of younger pop bands are more digital thinkers."

Perhaps proving Woods' point, Norah Jones' album "Not Too Late" debuted at No. 1 on Feb. 4 with over 400,000 sold. Only 41,000 of those albums were digital downloads. Jones' previous records have sold over 30 million copies worldwide, which indicates an appeal to both young and old.

It's still much easier for music sellers to establish the real-world cost and profit on a CD than a digital download. There's a tremendous amount of debate about the value of digital downloads, let alone how to price them. While iTunes offers songs for 99 cents each, eMusic works on a subscription model. Most artists and labels remain fixated on the costs of producing, printing, shipping and selling a CD.

Jeff Davidson, a management consultant in Chapel Hill, N.C. says ingrained habits are the key, that the real problem is in the music industry boardrooms.

"Old power structures never surrender voluntarily," he says. "Organizations become overly attached to their methods of doing business. It was abundantly clear more than 10 years ago, as the critical mass for the Web broke around 1995, that digital media was absolutely the way of the future. Even when the handwriting is on the wall, ceiling and floor, they find they cannot change."

jgross@statesman.com; 912-5926