Wal-mart exerting itself in the declining CD market

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David Matz

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Interesting twist in the decline of the CD. They are even selling Fritos to generate buzz and sell the music these days. It's probably a good thing for hobbyists and audiophiles, as various niche stores will pop on the "long tail" to cater to those who can't find their stuff at Wal-mart.

From yesterday's WSJ:

As CDs Decline, Wal-Mart Spins Its Strategy; Chain Signs Latest Exclusive Album -- And May Cut Titles

Veteran rockers AC/DC are set to become the next major band to sell a new album only through Wal-Mart Stores Inc., according to people familiar with the matter, a move that highlights the growing music- industry clout of Wal-Mart.

The AC/DC deal, however, comes at a time when the retail giant -- the largest seller of compact discs in the nation -- is signaling it may rock the music world by stocking fewer CDs. Such a move is part of a trend that would further accelerate the already steep decline of CD sales as consumers make the transition to digital music.

The AC/DC arrangement aims to replicate a successful strategy recently used by fellow classic-rockers the Eagles and Journey, both of whom in recent months have sold new albums exclusively at Wal-Mart. The Eagles'"Long Road Out of Eden" was the third-best selling album of 2007.

Such deals exemplify the kind of special treatment Wal-Mart increasingly seeks -- and receives -- from artists and record labels alike. These constituencies are willing to risk their relationships with competing retailers to keep Wal-Mart happy. Unlike the Eagles or Journey, AC/DC is under contract to a major record label, Sony BMG's Columbia Records, which brokered the pact with Wal-Mart and will also benefit from sales there. Columbia's decision to sell a major new release at only one chain has the potential to alienate retailers left out. (One competitor unlikely to complain is Apple Inc.'s digital iTunes Store, where AC/DC has never made its music available.)

Wal-Mart is expected to pull out the stops to promote the AC/DC album, the band's 16th studio release, which is to come out in the fall and hasn't yet been titled. Such a push -- including prominent displays of CDs in stores and heavy advertising -- could yield blockbuster sales, in an environment in which blockbusters are increasingly rare. Columbia Chairman Steve Barnett, reached by telephone, declined to comment. Wal-Mart spokeswoman Melissa O'Brien didn't respond to requests for comment about AC/DC.

But even as it strikes novel deals with a handful of artists and labels, Wal-Mart is preparing changes in its approach to selling the vast majority of music. It is unclear what the upshot of those changes will be, but one likely scenario involves cuts in the number of music titles the chain carries.

Wal-Mart executives, frustrated by perennially declining CD sales, have been quietly exploring changes in their approach to selling music. The company has described different versions of its potential new strategy to different players in the music industry.

These plans represent what could be a large next step in the demise of the physical CD, whose sales have fallen 16.5% so far this year, according to Nielsen SoundScan. Though the iTunes Store recently passed Wal-Mart to become the largest music seller in the U.S., Wal- Mart is still the largest seller of CDs, accounting for an estimated 30% sold in the U.S. (Factoring in iTunes sales and other paid downloads, Wal-Mart sells about 21% of the country's music). Even though it carries far fewer old titles than specialty music stores, Wal-Mart has become especially important at a time when many of those chains, such as Tower Records, have gone out of business, along with hundreds of independent record stores.

Though CD sales have been in steep decline since 2000, they remain crucial for music companies, accounting for 80% to 85% of domestic music sales, and are much more lucrative than 99-cent digital downloads. Wal-Mart's own Web site has gained little traction in its effort to sell music downloads, a market in which it remains a minor player.

Wal-Mart's current talks with the four major music companies have their roots in 2007's post-Thanksgiving shopping season. Wal-Mart at the time cut CD prices aggressively and saw a strong bump in sales. As a result, the chain approached music companies in February and asked them to commit to deep, across-the-board price cuts, to as low as $5, and to no more than $12, per disc.

The labels -- owned by Vivendi SA's Universal Music Group, EMI Group Ltd., Warner Music Group Corp. and Sony BMG, a joint venture of Sony Corp. and Bertelsmann AG -- balked, arguing that reducing prices so sharply would undercut the value of their product everywhere. The two sides began discussing other changes they could make.

Among the options under consideration are reductions in inventory, aimed at weeding out poor-selling titles. Wal-Mart has indicated to some music executives such cuts would be extensive, while others have been told they would likely be minimal.

Wal-Mart's senior vice president for entertainment, Gary Severson, says that in the next six months, "you'll see us clarifying our offering, whether through price or assortment." He adds that the extent of any planned cuts "depends on the store."

Music executives are bracing themselves.

"It's going to be a world where they're going to carry less titles," says Scott Siman, the manager for country superstar Tim McGraw, who has had extensive dealings with Wal-Mart. Earlier this year, Wal-Mart was the exclusive outlet for the launch of a custom-flavored snack called Tim McGraw's Spicy Jalapeno Fritos, and the star's "Greatest Hits: Limited Edition." The chips and CD were sold together in a $12 "combo pack," helping the disc debut at No. 1 on Billboard magazine's country chart in April.

But Mr. Siman said the real motivation for the exclusive offering at Wal-Mart was to try to maintain interest in Mr. McGraw's older studio albums, such as 1999's "Place in the Sun," so that they would be ensured shelf space. "If you're going to have enduring catalog titles, you're going to have to market them," Mr. Siman adds. When it comes to new music, he adds, "You can't just rely on putting a record out, hoping you'll get some airplay . . . and hoping people will figure it out."

In preparation for Mr. McGraw's next album, to be released by Warner Music this fall or winter, his handlers are already working on product tie-ins -- including a men's fragrance and a children's book -- at least some of which are likely to be sold exclusively at Wal-Mart.

Wal-Mart's own falling CD sales have already caused some collateral damage. Last week[6/2], Handleman Co., the so-called rackjobber that stocks and manages the music inventory for a third of Wal-Mart stores, announced it was selling that part of its business to a competitor, Anderson Merchandisers LP.

Handleman Chief Executive Al Koch says that even after aggressive cost cutting, his company couldn't continue selling music profitably. "In the short term, it's not possible to downsize as fast as revenue is declining," says Mr. Koch.
 
I remember radio ads with steep discounts on new releases...lps (in the mid 1970's)

You youngsters may not have been around when record stores (Warehouse Records) advertised new releases below list price. Let me know if you want a mp3 of some.

Cds have always been priced quite high...when compact discs first came out the record companies said that manufacturing costs were far less for cds. We never saw that savings though and sales have been going down since.

So, declining sales...can't imagine why. I buy from Amazon's vast selections (many are used, look brand new, and are steeply discounted).

I remember when radio stations would play side 1 and then side 2 (of new releases) so listeners could record them! Now, I record single songs from internet radio. That is still legal, time consuming but legal.
 
Well here's something completely different...

Declining CD sales huh?

Well here's a story that was on our local news this morning. I didn't record it, so I'll have to paraphrase.

Seems a stocking clerk working at a Fred Meyer store in Oregon inadvertently ordered a bunch of music in because it had great pricing, but when it showed up they were shocked to discover that it all came in on LP (vinyl, the black pizza, you know - hi rez audio ;)). They didn't know what to do, so they just stocked it hoping to recoup some of their expense. Guess what - they sold out of them!

Now they're ordering a bunch more and testing the vinyl waters in 8 of their local stores.

I love a happy ending. :D

Regarding Walmart having exclusivity on CD's by certain artists, that just makes my sphincter pucker. I wrote off the Eagles when they did it with their last album and now I suppose I'll have to add AC/DC to the list.
 
Cds have always been priced quite high...when compact discs first came out the record companies said that manufacturing costs were far less for cds. We never saw that savings though and sales have been going down since.

I remember reading the industry execs expected the leveling-off point for CD prices to be around $8 a CD, which was comparable to album prices at the time. The eventual "discount" price leveled off at $12 a CD, with premium prices being higher of course. Combine that with a decrease in commitment to music quality (both sound and aestetic (sp?)) from the industry, and here we are, predictably.

Though I doubt any industry execs will admit it publicly, some of them probably regret maintaining the prices at those levels for this long a time. Steve Jobs has a lot of detractors (and I certainly am not a fanboy), but I think he has done the music industry a reluctant service by forcing them to radically rethink their business model. I just hope that the high-end will not be left behind in the process...
 
I went in to Best Buy today to purchase the new ColdPlay CD at thier introductory $9.99 deal and saw on the rack that were also selling ColdPlay in vinyl. Who would have thought Best Buy would start selling new vinyl?

I would have bought a record but they were sold out which was also interesting. Ironically, they officially stopped carrying SACDs and DVD-As this past year. But they are now going to carry vinyl? It's all kinda of weird to me that they can be so quasi audiophile. By the way, there are no turntables in the store.
 
I went in to Best Buy today to purchase the new ColdPlay CD at thier introductory $9.99 deal and saw on the rack that were also selling ColdPlay in vinyl. Who would have thought Best Buy would start selling new vinyl and advertise it in their sunday flyer?

I would have bought the record but the display was sold out which was also interesting. Ironically, they officially stopped carrying SACDs and DVD-As this past year. But they are now going to carry vinyl? It's all kinda of weird to me that they can be so quasi audiophile. By the way, there are no turntables in the store.
 

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