Challenged music industry adapting for survival in

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ROCKFORD — Attempting to keep pace with the phenomenal growth of online music distribution both legal and otherwise, the recording industry is shedding its plastic wrappings and stylish compact disc covers for the ephemeral world of the digital marketplace.

Today, everything from MP3 music files to cell-phone ring tones can be purchased inexpensively through legitimate online retailers. At such Web sites as walmart.com and itunes.com, consumers can purchase music by the song, often for as low as 88 cents apiece.

But while the shift to online retailing may be necessary for the recording industry’s long-term survival, the sea change has far-reaching implications for traditional music retailers — from gigantic mall chains to locally owned shops.

Increasingly, store owners are being asked to answer a thorny question: Why should customers drive to their local mall or used record store when they can download the same product through their home computers at little or no cost?

A shrinking industry

The Recording Industry Association of America said the overall market for recorded music in the U.S. — including CDs, cassettes and digital downloads — shrank 14.7 percent from 2000 to 2004.

This is mostly because of illegal file swapping between computer users, plus competition from cheap and illegal bootleg CDs.

But legitimate online sales also have hurt traditional music retailers.

In the U.S., CD sales have dropped from 942.5 million units in 2000 to 766.9 million last year, a 19 percent decline.

“It’s no secret that the music industry is not doing very well right now,” said Donna Beadle, a spokeswoman for Minnetonka, Minn.-based Musicland Group Inc., which owns Sam Goody in CherryVale Mall and MediaPlay at 6455 E. State St.

“(Technology) has changed the industry a lot,” she added. “It’s changed the way we retail.”

Though Beadle refused to give specific employment or sales figures, business research firm Hoover’s Inc. estimates the company’s 2004 sales at $1.4 billion — a one-year drop of nearly 19 percent.

Likewise, Hoover’s estimates the company’s employment dropped 15 percent last year, to about 8,500 workers.

Much of the innovation that threatens traditional retailers comes from an unlikely source: the recording industry itself. Jenni Engebretsen, a spokeswoman at RIAA in Washington, D.C., said record companies are aggressively responding to the high-tech threat.

“We have seen a true explosion in ways for fans to enjoy music online and to do so legally,” Engebretsen said. “From the download model, you have iTunes and Wal-Mart,” and subscription services such as Napster and Rhapsody.

Indeed, Warner Music Group in August revealed a new “e-label,” in which selected artists will sell music strictly over the Internet, versus CDs and tapes. Universal Music Group made a similar move last year.

But when record companies stop manufacturing traditional music products, where does that leave local record stores?

Down at the record store

On a recent afternoon, David McGraw, 20, dropped in on the Sam Goody store at CherryVale Mall.

The Rock Valley College student wants to know whether the latest CD from rapper Juvenile has hit the store yet.

Although he’s looking for a CD today, he concedes that most of his music exists as digital files.

“MP3s, that’s the future,” McGraw said. “It’s cheaper — way lot cheaper.”

Jesse Foat, 23, a manager at the store, said he doubted CDs would become a thing of the past.

“I still prefer CDs over MP3,” he said. “MP3s are great for traveling, great for storing. Other than that, I’d rather listen to CDs while I’m at home.”

Foat said other forms of CDs are still being invented, including dual disc types (which feature music on one side and video on the other), and Super Audio CD, which can hold four times the information of a standard CD.

Still, when it comes to music, retailers might be fighting a losing battle.

Laura Miranda, 15, and Frank Avelarde, 18, students at Guilford High School, were in the Sam Goody store last week, browsing the CD racks.

Although they currently prefer CDs over MP3 files, both also own iPod file players.

Indeed, if MP3 files could more easily be played in their cars, Miranda and Avelarde would have even less reason to buy CDs.

Beadle said the future for Musicland may rest outside of music.

“In order to survive, we have to change, and we do feel there’s a future there,” she said. “We’re not relying solely on music to stay alive. Even if you look at a product mix in a Sam Goody store ... we also sell consumer electronics, gaming products, T-shirts, bumper stickers ... it’s a full entertainment offering, not just music.”

But such a variety might not be available to all retailers. Brian Bowman, 36, is the owner of CD Source in Rockford.

He has between 15,000 and 20,000 CDs for sale, most of them used.

His business has been steady, but not growing, for the past few years.

Bowman predicted that CDs have between 10 and 15 years before “the real bust.”

“Right now, the true disposable generation doesn’t need art or packaging,” he said. “When they hit their 30s, when they should be spending lots of money, they won’t.”

At Musicland Group, Beadle said the company was experimenting with new technology. One possibility was selling MP3 files inside retail locations.

“We just think that the products are going to continue to converge,” she said. “It’s not just about downloading music on the Internet. The music industry in general is changing; in order to survive we’re going to have to change, as well.”

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