May 07, 2007

research -- Music consumers buying less physical media

Rather than consumers tiring of physical CD media causing accelerated downturn for retailers, a new report proposes that the real reason is that the process of discovery is more often occurring outside the retailer and thus fewer impulse buys. Retailers need to be champions of discovery is solution. Also bigbox numbers.

Aisles have been poorly populated at physical music retailers for years, part of a pronounced shift away from CD purchases. The consumer migration, tame in previous periods, has suddenly accelerated this year, causing a fair amount of anxiety among retailers, labels and distributors. But what exactly is causing consumers to move so aggressively away from physical product? One explanation is that consumers are simply rebelling against a heavily-bundled package, one that forces playlist order and less-desirable album cuts. A highly related explanation is that digital files, and the iPods that house them, represent a far more convenient and satisfying listening experience, one that is more in-tune with music fans today.

Both are strong factors, though researcher NPD recently challenged their importance. "Consumer rejection of the CD is not the cause of the current accelerated sales decline," the group asserted during a recent presentation at the retail-focused NARM in Chicago last week. According to the researcher, deficiencies at retailers are a major source of the problem. The group noted that music consumers are usually discovering artists and songs outside of retail locations, a major missed opportunity. That means far less impulse purchasing, a significant driver of record label revenues across various platforms. According to the findings, just 13 percent of new music buyers make artist discoveries in retailers themselves, noticeably less than figures of 37 percent for traditional radio and 25 percent for personal recommendations. The solution, according to NPD, is for retailers to return to being "champions of discovery," a role that can be achieved by stronger selection, merchandising and promotion. Meanwhile, the deletion of Tower Records from the retail landscape is also playing a role in the downturn, especially for consumers that have not replaced their once-trusty outlets.

NPD Presentation

More Music news

Big-Box Retailers Edging Chains, Independents This Year

Big-box retailers are edging out chains and independents in music sales this year, according to information recently disclosed by Nielsen Soundscan. The data, shared with attendees at the annual NARM convention in Chicago last week, highlights the large and growing muscle that retailers like Wal-Mart now carry. According to the data, big-box - or mass merchant - retailers have claimed 39 percent of sales this year, compared to a 38 percent grab by chains like Trans World Entertainment. Meanwhile, non-traditional retailers retained an impressive 17 percent share, while independents pulled 7 percent. Typically, chains contribute a majority of music sales, though the absence of heavyweight Tower Records is undoubtedly causing the mix to shift.

Last year, both chains and mass merchants finished with a 41 percent share, though historical trends suggest that big-box retailers will widen their lead in the coming years. In 2001, for example, chains retained a 54 percent of total sales, while the big-box sector pulled a far-less impressive 28 percent. Of course, the shares being discussed are for a quickly-declining product, though the bleeding at mass merchants is far less severe. According to the Soundscan data, chains shed 12 percent in 2006, while mass merchants lost a less critical 4 percent. Meanwhile, the asset mix could change substantially depending on how retailers like Wal-Mart approach physical product moving forward. Recent information suggests that Wal-Mart is considering a sharp reduction in product, a response to decreased consumer demand.

Posted by staff at May 7, 2007 10:41 AM