NARM: Retailers Trying to Harness Downloads18 Aug, 2005 By: Jessica Wolf
SAN DIEGO — Call it Attack of the Kiosks. This year's National Association of Recording Merchandisers (NARM) convention, held here Aug. 11-14, was flooded with kiosk exhibitors and talk of leveraging the increasing demand for legal digital downloads while still preserving the sales of physical media.
At a research supersession, The NPD Group's findings that just 51 percent of “music acquired by consumers” came from CDs drew gasps, particularly when it was revealed that the figures include used CD sales and trades.
Meanwhile, digital download sales are booming, NPD reports. In the first three months of this year alone, 184 million digital tracks were sold. That's 30 percent more than all sales for 2004, when 140 million digital tracks were sold.
Meanwhile, CD album sales so far this year are down more than 7 percent from the same period last year, although a 2.4 percent uptick in calendar 2004 ended two consecutive years of declines.
It's a time of blending new and old, said NARM president Jim Donio in his opening remarks.
“In addition to continued digital music experimentation and growth in fee-based downloading, consumers are integrating digital music behaviors into traditional music listening and organizational habits,” Donio said. “They often copy prerecorded CDs onto their computer, or sample digital music online before purchasing a prerecorded CD to add to a permanent collection.”
It's clear consumers want their music in physical and electronic formats — and will for the foreseeable future, he said. “But it will be a long time before downloads can offset the physical sales decline,” he added.
Kiosk suppliers like Mix & Burn and TouchMedia, both of which exhibited at the NARM show, allow shoppers to download digital files directly to their portable devices, as well as buy “plastic.”
NARM's media-on-demand task force met with a list of ideas urging the major labels to supply promotional initiatives like add-on purchase incentives that can marry digital and physical sales.
The kiosk business is expensive for most smaller retailers, said Duncan Browne of the 26-store, New England-based Newbury Comics chain.
Margins counted in the $0.15 range, costly equipment as well as antiquated and monstrous-to-navigate licensing issues are all factors, Browne and other panelists at a kiosk discussion noted.
But, the kiosk's time is coming, Browne said. Right now, indie music retailers are competing with the big-box stores on breadth of indie and catalog product, he said. But that won't last once Best Buy and the other big discount chains get into the kiosk business, because these machines remove the shelf-space issue. Best Buy is testing touch-screen kiosks from one of the companies — Virtual Music Stores — that exhibited at the NARM show.
TouchMedia wants to use its kiosk technology to get video retailers into the music biz, said company president Michael Fitts.
“With the information we retrieve, we can tell [video retailers] exactly what to stock,” he said.
Meanwhile, the fight against illegal downloading continues. In his keynote speech, Mitch Bainwol, chairman and CEO of the Recording Industry Association of America, hailed the recent Grokster decision as a firm “green light” for the industry, which is “morally right” in its charge against illegal music downloaders.
The lawsuits and public awareness campaigns seem to be having an effect, he said. As broadband technology continues to rapidly increase, illegal peer-to-peer downloading has flatlined, he said.
Ripping and burning is actually a much larger threat to the music industry right now, Bainwol said. P2P downloads accounted for 16 percent of consumers' music acquisitions last year, he said. Burning made up nearly twice that much, at 29 percent.
Last year, overall music purchases — including sales from albums, singles and digital — exceeded 800 million for the first time since 2000, according to Nielsen SoundScan research. Album sales were up 1.6 percent, compared to a 3.6 percent downturn in 2003. Year-to-date overall music purchases, including album, single, digital download and music video sales, is up 21 percent over 2004.
Music DVD sales are on the upswing, according to statistics from Nielsen Entertainment. In 2004, consumers bought an estimated 35.26 million music DVDs, up from 19.52 million in 2003 and 10.94 million in 2002.
The DualDisc, the CD-DVD hybrid trumpeted as one of the music industry's biggest hopes, also was a hot topic of the show.
The major labels are bullish on the new product, which accounts for about 2 percent of total music sales, according to NPD.
William J. Frohlich and Jordan Katz, presidents of Sony BMG, tipped a form letter wrapped with a selection of DualDisc titles into NARM attendee goody bags.
According to Sony research outlined in the letter, 94 percent of surveyed consumers said they would recommend DualDisc to friends; 96 percent said they are interested in buying new DualDisc releases; 89 percent are interested in DualDisc versions of catalog CDs; and 80 percent said they plan on buying a DualDisc of an album they already own.
There is, however, one unfortunate side effect of DualDisc, at least for companies like 5.1 Entertainment, one NARM attendee pointed out: It's getting harder for these content suppliers to garner third-party licenses to create and release 5.1 Surround Audio mixes of albums, since the artists' labels are now doing it themselves on the DVD side of the DualDisc.
The major labels aren't focusing enough on the video opportunities of DualDisc, said Ed Seaman, president of indie supplier Music Video Distributors. His company is releasing its first DualDisc release with 80 minutes of video concert footage of Devo. The majors typically include about 20 minutes of video content on the DVD side of the hybrid disc.
“They're mostly treating [video content] like an add-on,” he said.
Donio said the 2006 show will be held at the Gaylord Palms resort in Kissimmee, Fla., Aug. 2-5. The following year will see another venue change and a swing back to a spring time frame, with the show slated for April 29 through May 2 at the Chicago Hilton. In 2008, the show will be held in April and return to the West Coast.