Chaosmusic Represents Web On Amra Board

The increasing importance of E-tailing is reflected by the arrival of ChaosMusic founder and CEO Rob Appel on the board of the Australian Music Retailers Assn. (AMRA), effective July 20 (BillboardBulletin, July 21).

Appel replaces Jeff Harrison, former managing director of Melbourne brick-and-mortar store Gaslight Records, which Chaos bought out in 1998; Harrison initially became Chaos' COO but left in June. AMRA emphasizes, however, that Appel is being brought in primarily because of his knowledge of new technology and to represent the interests of Australian online sellers of CDs, videos, DVDs, digital downloads, and other music formats.

AMRA chairman Gavin Ward says that E-tailing is "a fledgling industry" but that "it'd be unrealistic to say that E-tailing doesn't exist when it's clearly an integral part of retailing's future. We have a lot of common issues." The four main Australian music E-tailers are all represented within AMRA. Perth-based Noizenet is a member in its own right, while Sanity.com and HMV.com are present as divisions of their brick-and-mortar parents. Chaos itself became a member through its purchase of Gaslight.

Besides Appel, the AMRA board comprises Ward (GM of the 220-outlet Leading Edge chain), vice chairman Geoff Bonouvrie (GM, Mall Music), John Carrig (managing director, CC Music), Barry Bull (owner/GM, Toombool Music), Steve Wright (product and marketing director, HMV), Ross Gengos (director, Abels Music), and Mark York (computer division manager, Vox Retail).

Appel identifies two issues that he says need to be addressed immediately. The first involves the new 10% goods and services tax (GST) that came into effect July 1 (Billboard, July 1), replacing a previous 22% wholesale tax. The other is the need for parity on DVD releases.

The immediate result of the introduction of the GST was a $1 Australian ($0.59) price cut on top-of-the-range CDs at retail. Consumers, however, had widely anticipated that the new tax would lead to a drop in full-priced CDs of up to $7 Australian ($4.13).

Apart from consumer disappointment at the level of price reduction, the new tax has posed a problem for E-tailers. Currently, E-tailers here source the vast majority of their product from Australian companies, after considerable pressure was placed on them to do so by the local music business. Previously they had sourced much of their stock from overseas, without incurring the wholesale tax. Post-GST, the domestically manufactured product they now sell is subject to the new 10% tax.

"That puts us at a disadvantage to international E-tailers in relation to Australian consumers," says Appel. "I'd like to see the Australian government put a moratorium on the GST—or any other taxes—for Internet businesses for the next three years, so they can grow and flourish, as [it] happened in the U.S."

In the past 18 months or so, local E-tailers have been increasingly attracting local customers through expanding catalogs, more efficient service, and greater brand recognition. ChaosMusic is viewed by suppliers as a market leader among Australian E-tailers; it claims a 15% to 20% share of online sales (in January 1999 it had just 2%) and a fast-growing customer base of 66,000, which it predicts will reach at least 90,000 by this Christmas.

However, Appel fears that the new tax could cause more Australians to return to offshore operators such as U.S. E-tailers Amazon.com and CDnow, which still have the lion's share of the online market.

Appel also calls for a level playing field in regard to video release schedules, particularly on DVD. Australian DVDs carry a region-five encoding, meaning that discs from other regions—including the U.S., which is region one—are unplayable here. However, E-tailers (and brick-and-mortar retailers) from region one get the latest DVD titles well ahead of their counterparts in other regions. "The ideal situation is for the producers to release more titles in region five to match those in region one," says Appel.

The inclusion of an E-tailer on the AMRA board is seen as significant by insiders, although the size of the local online music market is estimated to still be only between 1% and 5% of the entire music market, which was valued by the International Federation of the Phonographic Industry at $656 million (retail) in 1999. Chaos' own prospectus in December 1999 put the local online market's worth at that point between $33 million and $40 million Australian ($19.47 million and $23.6 million).

Since taking the chair in November 1999, Ward has worked to change AMRA from being a traditional brick-and-mortar association. AMRA claims to represent 60% of independent traditional retailers (some 260 stores), or 45% of the overall market in terms of retail sales. Most of the specialist music chains, including Sanity, HMV, Leading Edge, and Vox Retail, are members.

But nonspecialist chains like Kmart, Woolworth, David Jones, Myers, and Grace Brothers, with an estimated combined 30% of the music market, are not members; nor are record clubs. These operations are all being targeted as part of a current membership drive.

Under Ward, AMRA has worked closely with the Australian Record Industry Assn. (ARIA) on trade, censorship, digital copyright, and marketing issues. AMRA has promised to provide more retailer feedback if ARIA in turn makes its electronic product catalog and ordering system, AEROS, more retailer-friendly and provides improved weekly statistics, which could help music merchants run their businesses better.

AMRA is also spending more on marketing and research for its members and is about to launch a Web site. It is in negotiations with the organizers of the annual Pacific Circle Music Conference to include more retailer issues and co-run a retailer convention next year. Additionally, AMRA is helping to fund Australia Music Week, planned for October or November this year as part of a media/retail campaign to promote Australian music. It was also a founding member of the 13-country Global Entertainment Retailers Alliance, launched at the National Assn. of Recording Merchandisers Convention this March.

Ward says he is expecting feedback from members on AMRA's future direction at its next annual general meeting in October. Its recent focus has been on the arrival of the GST. AMRA published a 50-page "how to cope" booklet and issued frequent bulletins to members with advice from the Australian Tax Office and consumer watchdog the Australian Consumers and Competition Commission. Alongside ARIA, it negotiated a "safe harbor" scheme with the tax office, saving retailers significant compliance costs.

The GST, says Ward, has been partly responsible for an unimpressive first half of 2000 at retail. He says wholesale shipments to stores for the six months ending June 30 stand at $209 million Australian ($123 million). Figures for the same period the previous year were $227 million Australian ($133 million).