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NARM Update: New Formats Offer a Way Out of the Music Slump

18 Mar, 2003 By: Kurt Indvik

Consumers' illegal downloading of music off the Internet will continue until the industry can offer its own easy-to-use and cost-effective digital solution, a group of business and securities analysts agreed during a panel at last week's National Association of Recording Merchandisers (NARM) convention in Orlando, Fla.

Meanwhile, it was announced at the convention that Borders has joined the Echo consortium of major retailers looking to develop their own digital music delivery platform. Borders joins Best Buy, Hastings, Tower Records, Trans World, Virgin Entertainment and Wherehouse Music.

“The false assumption by the music industry has been exposed ... that people want every song on an album,” said Harold Vogel, president of Vogel Capital Management, during a panel discussion. “When technology became available to listen to one or two songs, that's what they did.”

Vogel said the industry's own efforts with PressPlay and MusicNet are starting points, but they haven't delivered in terms of ease of use and realistic pricing. Meanwhile, piracy enforcement against customers and CD pricing that is hanging in the $15-$20 range shows the industry “trying to hold up a previous business model” that the Internet is making irrelevant.

Panelists agreed that the way the music industry copes with the Internet will have extraordinary impact on the entertainment industry as a whole.

Barry Sosnick, consultant with Adams Media Research, took issue with the fact that the industry's woes could be laid at the feet of the Internet or that the way to raise the value of CDs was to lower the price.

“Pricing is part of what got the industry into its problems, but pricing is not the way out,” Sosnick said. Once the industry starts dropping prices, “You'll never get it back. The rush to a pricing solution will be disastrous,” he said.

Meanwhile, NARM attendees were honest in their assessment of a music business struggling to regain its momentum, but upbeat that they could turn the tide of their business by focusing on expanded music formats, including a resurgence of the single, retailer-based digital delivery, and the emerging formats of DVD-Audio and SACD.

Simply put, said Don VanCleave, president of the 75-store Coalition of Independent Music Stores, “We're looking for new things to sell.” He noted that his group is actively expanding in music DVD, including DVD-Audio, but awareness about the formats is only beginning to percolate. “We have to punch through to the customer that there is something now that's more than just a CD.”

VanCleave was also part of a panel discussion on DVD-Audio, where he said DVD-Audio was a way to offer more value. “Our guess is that the CD will be the $10 product and DVD-Audio will be the $18 product,” he said.

“This is the biggest template we have ever had to be creative,” said Ted Cohen, EMI's VP, digital development and distribution. “We have come together to relaunch music in a new way.”

To encourage retailers to carry DVD-Audio, presenters from Warner, DTS Entertainment and Silverline Records joined EMI in singing the format's praises, playing samples of new releases and existing DVD-Audio from The Beach Boys, Linkin Park, Queen and Aaron Neville to demonstrate DVD-Audio's surround sound.

“There has never been a format launch for delivery of music with an installed base of 95 million units,” said Jeff Skillet, VP of business development for DTS Entertainment, referring to the installed base of DVD players (including consoles, and DVD-enabled PCs and game consoles).

DVD-Audio can be played on standard DVD players without the high-resolution audio, but with the surround sound experience.

Presenters estimated that more than 44 percent of all DVD players sold by 2004 will be DVD-Audio enabled. There are about 1.2 million DVD-Audio players on the market.

Hilary Rosen, outgoing president of the Recording Industry Association of America said in her NARM keynote address that the industry, often at odds with itself, is “at a critical juncture in our relationship with music fans, and now is our opportunity to put their interests first.

“Consumers ... want music in more formats than we give them,” she said. “They want deeper catalog more easily available. They want a way to make compilations without feeling guilty or like criminals.”

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