U.k. Troubled By Static '99 Market

LONDON-On the eve of its annual celebratory, and often rambunctious, Brit Awards, the U.K. record industry doesn't seem in the mood to party.
Newly published statistics from the British Phonographic Industry (BPI) have confirmed that there was no significant market growth last year (BillboardBulletin, Feb. 14). But there are also other unsettling issues for the business, and these are bound to be chewed over at London's Earl's Court venue when the Brit Awards 2000 takes place there March 3.
Chief among them: the ongoing difficulties in breaking U.K. career acts in major international territories, particularly North America, and the ugly financial dispute-still unresolved-between one of the largest music retailers, Virgin Entertainment Group (VEG), home to the Virgin Megastores and Our Price chains, and the major record companies. The latter foreshadows other possible conflicts between music manufacturers and music merchants, as online retailers and supermarket chains ratchet up the pressure on pricing and profit margins.
"Because there is little growth or, arguably, falling sales," says John Kennedy, chairman of market-leading Universal Music U.K., "there is a bit of a downbeat feel [here]. But the great news is that we all know that it doesn't take that much to get out of it. And if there is a general view that we haven't been producing that many great international artists . . . then we know that's the solution to our problems."
Also countering the downbeat mood: the fact that the U.K. may now be more important than ever as a staging post for international artists' worldwide success. The architects of Shania Twain's global game plan, for instance, focused specifically on this market first-and "Come On Over" is certified for 2.7 million sales, the largest single-territory result for her Mercury album outside the U.S.
In similar vein, Sony Music shrewdly exploited British music fans' left-field appetites in 1999 with Macy Gray's Epic album "On How Life Is." It has been certified for triple-platinum sales of 900,000 copies and is penetrating other European markets.
Mark Collen, managing director of EMI Chrysalis, agrees that the success of those artists underscores Britain's continuing strength as an eclectic landscape. "It's still a critical market, because we have a tremendous thirst for all kinds of music," he says. "However successful or unsuccessful we may be [at producing international acts], people still always look to the U.K."
Macy Gray has two Brit Awards nominations, and she and her six-piece band are expected to be one of the live highlights of the show on March 3, which is televised on national TV the following night. Homegrown talent scheduled to perform includes Travis, Stereophonics, Basement Jaxx, Five, Queen, Tom Jones, Geri Halliwell, and (separately) Spice Girls.
The MasterCard-sponsored ceremonies are, as usual, tied in with a retail campaign involving members of the British Assn. of Record Dealers (BARD), who will hope for a sales lift for performing and winning talent. In most categories, the Brit trophies are awarded on the basis of votes by a 1,000-member industry academy (Billboard, Feb. 12).
The show will reflect a year in which, according to the BPI, the value of trade deliveries rose only 1.1% over 1998, from 1.12 billion pounds ($1.8 billion) to 1.13 billion pounds ($1.81 billion). In a statement, the trade association claims that the annual increase "compares favorably with other leading international markets."
Year-on-year figures show album unit shipments down 5.9% from 1998, a drop in value of 0.2% from 997.2 million pounds ($1.601 billion) to 995.4 million pounds ($1.599 billion). Reflecting a 23.6% increase in the average trade price of singles over the year, the year-on-year value of the singles market rose 11.6% to 138.1 million pounds ($221.7 million) in 1999. However, that represented a units rise of only 0.9%, from 79.4 million units to 80.1 million.
The annual results were boosted by a strong fourth quarter; the BPI says, "[Fourth-quarter] 1999 generated the highest sales revenue ever." Although overall album sales in that October-December period were down 4.1% in units, total music sales in the U.K. during the period rose 2.6% to 468 million pounds ($751 million), with singles value rising 17.3% to 39.8 million pounds ($63.9 million).
The figures emphasize the increasing importance of the fourth quarter to the local music industry; it accounted for over 40% of the year's sales revenue and the highest share of annual sales revenue since 1985. Despite that, Brian McLaughlin, managing director of HMV Europe and BARD chairman, suggests that it was "not a great quarter." He adds, however, "It has to be looked at in the context of the figures for 1998, which was an exceptionally good year."
The lack of real blockbuster titles affected the modest annual increase, McLaughlin says. "We didn't have the George Michael double this year-or the added value from that, as it was a double CD." Nevertheless, he says that "if you look at overall high street spending in December, it was no great shakes, so in terms of what was being spent, the record industry didn't do too badly."
VIRGIN BATTLE
However, the business has been disappointed by the new year's battle with Richard Branson's VEG. The firm withheld outstanding November-December payments-said to exceed $50 million-to the major record companies while it attempted to renegotiate terms of trading.
Reports that the merchant was in financial difficulties were vociferously denied by Virgin, which focused its initial public statements on margin erosion and what it claimed were preferential terms offered to online and direct sellers (Billboard
Bulletin, Feb. 2).
In more recent days, Branson and his retail management have met individually with major-label chiefs to try to reach a settlement.
"I don't think any of us really understands why we're simply not being paid," says Universal's Kennedy. "It doesn't make any sense, and given that Richard Branson is a decent, honest, trustworthy man, he's going to put it right very soon."
He describes his meeting with the Virgin chief as "perfectly civil," adding, "The message [to Branson] is loud and clear: "Our records have been sold to you; they're sitting, for the most part, in [consumers'] living rooms; it just can't be right to not pay even if you had some grievances.' The grievances that have been aired [by Virgin] are simply not justified. Terms with Internet retailers can't be discussed openly, but if the solution to the problem is that Virgin would like the same terms as we give Internet retailers, then we'll happily do so."
HMV's McLaughlin, while declining comment on the VEG situation, does note that nonspecialist retailers have been adding to the pressure felt by music merchants.
"Supermarkets-who are in their own spin war-are now trying to drive down the price of chart CDs to bring extra traffic into their stores," he says. "None of them are serious specialist record retailers. At the end of the day, we've got an offer that's far wider than any of the supermarkets', and we can't sit there and let other people drive the price down while we stay true to the U.K., paying an inflated price. All we're asking for is that the record companies recognize that people have a choice; they don't have to buy in the U.K. anymore.
"With the Internet and with supermarkets and the [parallel] import situation, CD pricing is a perception issue," McLaughlin adds. "Now we've got a government report saying that CDs are far more expensive in the U.K. than anywhere else in Europe. We're getting to the stage where customers will be looking at specialist stores like ours and saying, "You're too expensive.' This is the biggest issue that record companies have to face; it's not the Internet that they should be worried about in the year 2000, it's the whole issue of price."
WHAT ABOUT THE MUSIC?
Other observers are worried about the music, especially as an export commodity. No U.K. artists registered among the top 80 biggest-selling albums in the U.S. last year, based on SoundScan data. Two artists, Fatboy Slim and Charlotte Church, managed to make a showing just below that level, with 1 million unit sales apiece of their respective albums, "You've Come A Long Way, Baby" (Astralwerks) and "Voice Of An Angel" (Sony Classical).
EMI's Mark Collen says, "There has generally been a rude awakening, in that the growth of domestic repertoire in what have traditionally been export markets has really shocked a lot of people. And some have still not woken up to it.
"Being British, or even American, now does not give anyone a divine right to playlists," he says. "We have to focus on our rosters and work fewer acts for longer and harder to break them bigger, although there are certain expectations from overseas that we've got to gift-wrap everything with a ribbon on it."
Collen adds, "But it's very easy to sit in the U.K. and say, "Nothing's happening [for us] in America.' When you go to L.A., or somewhere else like Denver, you realize it's a very different place, and a lot of [British] acts aren't good enough. We wouldn't expect an American act to break here unless they'd made the effort."
The label Collen leads, Chrysalis, had 1999's sixth biggest-selling album in the U.K. with Robbie Williams' "I've Been Expecting You," which is eight-times platinum (2.4 million units) in British sales. While the executive admits that Williams has not yet broken as widely in the U.S. as was hoped, he believes that breakthrough will come this year.
Keith Harris, chairman of the International Music Managers' Forum (IMMF), says there is no denying that part of the British industry's worldwide profile has been eroded. "My real concern is the international side and the fact that countries are now starting to look elsewhere, when traditionally Britain has always been the key to cracking Europe," he says. "Now the domestic marketplace [of those countries] is getting much stronger."
The IMMF represents artists' managers in the U.K. and, through a network of international affiliates, in other markets. "We could do well to look to what's going on in Scandinavia," says Harris, "which is coming on very strongly, and where they've had strong government support for the industry and very good grass roots in place to foster musicians."
It may be a mixture of complacency and pride that is hampering the U.K. industry's international expansion, according to Harris. "For a long time, the general line has been-and the BPI were quite keen on this line-that the [British] industry is very healthy and we don't need anybody's help. But I don't think that's necessarily true.
"In other industries where Britain has been a market leader, that kind of complacency has revealed some real problems," he says. "For example in the film industry, not to mention in sports. Other countries respond, and we don't, but it's not too late to change."
"We are complacent, have been ever since the Beatles," declares Jeremy Pearce, CEO of independent V2 Records. "This effortless assumption of superiority is something I've always been painfully aware of, the idea that England is in some way the center of the world just because it once was. We've assumed we'll be selling internationally no matter what we dish up."
V2 had one of 1999's bona fide breakthrough acts in Stereophonics, whose second album, "Performance And Cocktails," is now at almost 2 million sales worldwide, according to Pearce. "It's absolutely great that with Stereophonics, Travis, and presumably Oasis, some guitar bands are making it," he says. "On the whole, I must say the whole phenomenon of [records by] soap actors and manufactured groups has been pretty unhealthy."