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Music Business in Misery

Layoffs and retail closings amid falling CD sales

July 18, 2003 12:00 AM ET

When the record industry announced in June that it would begin filing individual lawsuits against hundreds of illegal file-swappers, it was not just a bad PR move, it was a signal that the music business is more desperate than ever. Halfway through 2003, sales continue to slump, down eight percent from the first six months of last year. Three of the ten best-selling albums so far this year were actually released in 2002, and only three artists -- 50 Cent, Norah Jones and Linkin Park -- managed to sell more than 2 million copies between January and June. 50 Cent, who has sold 5.2 million albums, had the best first-half numbers of any artist since 'N Sync in 2000, but there have been few other blockbusters.

During the same six months, at least 1,300 label staffers lost their jobs, and around 600 record stores closed. Many retailers say the labels are too focused on combating downloading and not focused enough on lowering CD prices. "We've got a bad economy, and we're still trying to sell records for $18.98," says Don Van Cleave, president of the Coalition of Independent Music Stores. "People's perception of the value of music is all messed up right now."

Retail has felt the brunt of the slump. At the start of 2003, Wherehouse Entertainment filed for bankruptcy and said it would close 190 stores. Best Buy-owned Musicland shut down 107 stores. Trans World Entertainment Corp., owner of FYE and other chains, planned to shutter twenty-five stores. And Tower Records, reportedly in danger of bankruptcy after losing more than $13 million this spring, is for sale. Van Cleave notes that as CD sales decline, retailers have been forced to devote more space to DVDs, video games, books and, increasingly, toys and "lifestyle items" such as SpongeBob SquarePants dolls and Manic Panic hair dye. "That stuff is so much more profitable than music," he says. "Selling toys allows us to price music lower."

Retailers are also asking the labels to commit to releasing more CD singles. The American Idol CD singles by Ruben Studdard and Clay Aiken, available in most stores for less than five dollars, have sold more than 1 million units combined in five weeks.

The recent success of Apple's iTunes Music Store may be the best news the industry has had lately. Since iTunes was launched in late April, it has sold more than 5 million songs for ninety-nine cents apiece - even more impressive considering that Mac users constitute less than four percent of computer owners. "iTunes has shown that there is a real business potential for selling downloads," says a source at Warner Bros. "It has been encouraging from a symbolic standpoint even more than a financial standpoint." Amazon.com and other online retailers now plan to launch their own download programs.

In the interim, the labels have had to cut costs and consolidate staff to almost skeletal levels. Earlier in the year, BMG fired 300 employees, and Sony let go 1,000. When RCA and J Records were combined -- under the leadership of Clive Davis -- about fifty people were given pink slips, and RCA's roster was whittled down to a lean forty acts. And in June, legendary label MCA Records, home to Blink-182, Shaggy and Mary J. Blige, was dissolved and folded into Geffen Records.

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