State of the Marketplace '08

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This is Celia Hirschman with On the Beat for KCRW.

This week, music retailers joined together in San Francisco for the 50th annual trade conference, to discuss the state of their record business.

The mood among physical retailers was subdued. With double digit declines in revenue year after year, few physical retailers in the music business have reason to celebrate. Most have had to diversify the stock they carry to include video games, DVD's, clothing, books and toys to cover the losses in music sales.

The conference, organized by the National Association of Record Merchandisers, or NARM, has historically been a “must attend” for those involved in selling music. Though speeches are made, and artists perform, the real deal-making is done in private. Record labels and distributors organize lavish suites, for face time with music retailers like Best Buy, Target and Barnes & Noble. Each business comes with its own agenda. Labels look to gain support for individual releases, distributors look to secure greater dominance in shelf space and retail stores try to limit stock to titles that move quickly. The meetings are scheduled like speed dating, in half-hour increments.

With the digital-music space grabbing so much of the news these days, it was only natural for NARM to build out a complementary conference to serve its needs. Digital NARM covers Day Three and Four of the conference, and is far more interesting than regular NARM.

My favorite part of NARM is when SoundScan lays out their numbers. SoundScan has put devices that monitor record sales in retail stores around the country. Armed with information, they present the industry an insider's look at what consumers are doing.

According to SoundScan, there were over 1.6 billion decisions to purchase music in 2007. Don't let that number fool you. Nowadays, a purchase could yield just $.25

And 1.6 billion decisions to purchase does not compare with the billions of music files freely traded every month on peer-to-peer networks.

There were over 80,000 records released last year. Nearly 80% of these releases sold less than 100 copies. This shows that digital retail has excellent long-tail sustainability, but large brick-and-mortar retailers need to rethink their strategies.

Of those 80,000 albums released, less than 1,000 titles drove 80% of all sales last year. But are these 1,000 titles in fact the records that labels have sizeable investment in?

The answer to that question came from a discussion with Napster. Napster is a service that has both ala carte sales like iTunes and a subscription model like eMusic. They offer full streams of music to their subscribers, with six million songs in their catalog.

Forty percent of their subscribers stream the Top 100 hits from radio. But when it comes to buying the music they hear, only 10% of these listeners actually buy the music. To me, this proves that most of today's “hit” records are not actually hits at all. The days of hit radio driving the sales train are over. Today, the consumer defines what a hit record really is.

Record labels need to make serious hard turn to find acts that ignite consumers' interest and develop marketing strategies that meet that interest. The consumer is king and the days of hyping consumers is definitely over.

This is Celia Hirschman with On the Beat for KCRW.