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Music Industry Down The Toilet? 

Bands, Labels, Radio and Retail Feeling Flush

Page 3 of 4

The music business is to some extent dependent on the vicissitudes of pop culture; most observers agree that, after a decade of often double-digit growth, driven first by the hard rock band Nirvana and then by record-breaking teenybopper artists like 'N Sync and Britney Spears, the industry is looking for a new focus.

The new DIY

That problem is exacerbated by the continued runaway sales of blank, recordable CDs, or CD-Rs. As Salon reported last year, lots of music retailers find themselves in the awkward position of watching CD-Rs become the bestselling item in their stores, while at the same time realizing CD-Rs could literally drive them out of business. Thanks to CD burners hooked up to computers, the phenomenon of file sharing introduced to the masses last year by Napster, and popular at-home CD taping courtesy of Phillips stereo components, millions of consumers are simply making their own CDs and taking a giant bite out of over-the-counter sales.

For instance, industry observers used to be able to look at a superstar's first-day sales numbers and, based on a reliable formula, be able to project how many copies that album would sell after seven days in stores. Now with CD-Rs, labels often see a big first-day sales number and then watch it tail off over the next six days, falling short of projections.

"We saw that with the last Blink-182 record," says Mayfield at Billboard. "If you looked at first-day sales you'd think it was going to have a huge week. Yet it only ended up having a very good week. Some labels are starting to worry that, you know, Charlie bought one copy and made three copies for his friends."

Industry analysts predict 1.2 billion blank CD-R discs will be purchased this year in North America, an increase of 50 percent over last year. By comparison, roughly 750 million pieces of prepackaged music will be sold domestically in 2001.

It's not just the dirt-cheap CD-Rs themselves, it's the presumption among so many young consumers, radicalized by Napster, that music should be free.

"I think it's going to be difficult to recapture people who stopped paying for music," says Manifest Disc's Singmaster. "According to their value system, they shouldn't pay for music."

Of radio ads, indies, and pesky musicians

That "free music" attitude doesn't bode well for XM and Sirius, two fledgling satellite radio firms launching a service that offers digital-quality, sometimes commercial-free programming. If fans don't want to pay $16 for CDs, will they pay more than $100 each year for something like radio, which has always been free?

Then again, the radio business is hurting so badly right now, in what some veterans are calling the sharpest advertising downturn since World War II, a few station owners might be tempted to charge listeners a fee. According to Radio Advertising Bureau, local advertising in September declined 12 percent compared to last year, while radio's national business plunged 23 percent. This is an industry that, two years ago during the dot-com boom, was facing the very different problem of not being able to put willing new advertisers on the air; station inventories were sold out.

The downturn helps explain why radio's biggest player, Clear Channel Communications, recently lost $232 million in the third quarter. (One year ago during the same period, Clear Channel reported a net income of $449 million.) Earning reports like that in turn help explain why Clear Channel is axing employees nationwide. Locally, that includes Magic 96.1's popular deejay Harriet Coffey.

In the past, laid-off radio executives often found refuge working at record companies. But anyone pink-slipped from radio recently isn't likely to find many record companies hiring.

For the six months ending September 30, the London-based EMI Group, home to Capitol (Garth Brooks) and Virgin Records (Janet Jackson), posted a net loss of $77 million. It's widely known to be on the selling block; the problem is that EMI has no takers. After all, who wants to enter the profit-challenged music business right now?

Meanwhile, one year ago Thomas Middelhoff, the chairman of the German entertainment conglomerate Bertelsmann, was toasted in the press as a visionary when his BMG Entertainment (home of RCA, Arista and Windham Hill Records, among others) broke with fellow major labels and entered into an $80 million deal with bad-boy file-sharing outpost Napster to help it transform itself into a paid subscription service. Today, Napster remains a commercial nonentity and BMG has had to dismantle its online strategy.

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