Editorial: Winter Of Discontent

With apologies to Charles Dickens, this is, for the U.S. music business, the worst of times. Period.

First came New York Attorney General Eliot Spitzer's payola settlements with Sony BMG (for $10 million) and Warner Music Group ($5 million). Between these two headline-grabbing blows came Sony BMG's digital rights management debacle—which created a field day for bloggers and the media.

Now comes the unkindest cut: A Thanksgiving weekend that almost all music retailers would like to forget. Black Friday, that most promising of days, turned out to be Bleak Friday, as entertainment consumers opted for gadgets and games and DVDs—almost anything but CDs.

The numbers are scary. Nielsen SoundScan tells us business was down 12.7% for the opening week of the holiday-selling season. Many retailers say the decline was more like 20%. Any merchant that managed to come close to last year's numbers was happy, or as Don VanCleave told his Coalition of Independent Music Stores brethren: "Flat is the new up."

Some retailers fear it is too late to salvage this year's holiday season. That is why they are looking ahead to 2006 and wondering what kind of relief they are going to get from the supply side.

It is time for the big labels to do some soul searching. Whatever projections the industry may have about the digital future, we are not there yet. Traditional retail is still central to the music food chain; when retailers are hurting, everybody hurts.

More than anything, retailers want price relief. However, customers are fickle. The same fans who pay $450 to see the Rolling Stones for two hours will not pay $14.95 to own a Stones CD for the rest of their lives.

But wholesale pricing is one thing that the labels still control. Universal Music Group has proved that reducing the cost of goods (combined with great A&R) can help build market share.

Walk into any music specialist today, and you will still find rows of new releases priced as high as $18.98. In an age of 99 cent downloads, the industry needs to act decisively to eliminate such anachronistic pricing.

Getting back to Mr. Dickens: We all remember Christmas past. We have a good idea how Christmas present is going to pan out. It is time to focus on putting the cheer back into Christmas future. ••••