A music awards event in New Zealand and a bankruptcy in the US augur ill for the retail CD distribution business.
In New Zealand, the nominations for its September mobile music awards were announced in August. Typically, this is not cause for news given that the music industry calendar is stuffed with awards programs. However, the NZ awards celebrate the number of mobile downloads of Tru Tone ringtones or Caller Tunes according to the same scale as the Recording Industry Association of New Zealand uses for vinyl or CD singles over a 12-month period. Gold and platinum awards for mobile tunes accrue to artists with sales of over 5,000 and 10,000 units, respectively. The fact that sales of mobile ringtones or caller tunes are just as valid a measure of an artist's popularity as CD or album sales in NZ only piles on to the current misery suffered by retailers of music CDs.
An ocean away in the US, Tower Records filed for Chapter 11 bankruptcy for the second time on August 21, less than three years after its first filing. The Sacramento, CA-based music retailer, formally known as MTS Inc., asked the bankruptcy court to approve the rules for an auction slated for early October 2006. In its filing, Tower said its annual revenue declined to $431 million for the fiscal year ended July 31, 2006, compared to $476 million in 2005. The company quoted Nielsen SoundScan data in its filing, saying that legal digital music downloads in the US grew 200% in 2005 whereas physical album sales declined 7.8%.
Tower's bankruptcy and the NZ mobile awards are not so much a beginning of change as a culmination. In nearly all of the important music-buying demographics, the proportion of full-length physical CDs being bought is declining.
Even the last bastion of CD playing, the automobile, is seeing a shift in how people consume music. While it is true that from a standard-feature point of view, most cars continue to sport CD players in lieu of docks for iPods or other portable MP3 music players, the more telling statistics involve what people bring with them when they travel in the first place. In this category, the CD player loses in a rout compared to mobile phones or digital cameras.
The shift in music-listening habits falls hardest on pure-play mass-market retailers such as Tower Records. The distribution market is starting to shake out into local music stores that offer specialty or niche titles in a unique environment alongside the big box retailers such as Target, Best Buy, Circuit City or Wal-Mart who concentrate on popular hits and volume.
Moreover, the problem with physical CD sales is global in scope. For Europe, the market for CDs is expected to continue declining year over year until 2010, according to UK-based researcher Screen Digest. Even though online music sales (which include both PC and mobile) should reach well over $300 million by the end of 2006, the overall European music market has lost over 20% of its value since 2001. Taken together, the Kiwis might be on to something in using the rise of mobile music downloads as a proxy for the overall appeal of an artist. CD sales are certainly nothing to cheer about.