Entertainment retailer Hastings reported a 0.2% slip in revenue in Q2 2008 (press release). Total revenue was $125.7 million versus $125.9 million in Q2 2007. Comp store music revenue, which comes from CD sales, fell 11.7%. That was an improvement over the 14.2% decline a year ago. Hastings reduced CD floor space in 22 of its stores in the first half of the year. Through the first six months, Hastings' comp music sales decreased 14% versus 13.6% in the first half of 2007.

Hastings' music sales mirror the trend in CD sales. In the first half of 2008, CD sales in the U.S. dropped 16.3%, an improvement over the 19.4% drop in 2007. CD sales were down 18.7% in 2007. An improved release schedule and a flurry of shelf space reductions in 2007 are two of the reasons 2008 has seen an improved, although still considerable, drop in CD sales. Hastings has not cut CD shelf space but not as dramatically as have some other retailers.

These numbers show a few important things. First, CD sales continue to sag but consumers have not given up on the format. There has not been the sort of mass migration away from the format that would lead to its extinction any time soon. Declines have been due to reduced retail involvement in addition to the more celebrated reasons (digital downloading, piracy). Second, retailers still have the desire to sell CDs and are successfully altering stores product mixes to make up for lower CD revenues. Hastings has done what Tower Records and others could not do: Its electronics sales were up 25.7% in Q2 ("strong sales of refurbished iPods, MP3 players and related accessories, as well as increased sales of third-party gift cards.") Hastings' and other retailers' ability to make up for lost CD revenues means there will be shelf space in the future instead of closed stores and liquidated inventories. Less shelf space is obviously better than no shelf space. Third, any double-digit decline offers more than enough incentive for labels to speed its transformation. The market is changing whether or not labels change with it. Digital download growth is slowing and other business models (ad-supported, subscription, mobile) do not offer a clear path to the future.

Even though retailers are keen to stock CDs, some are being more proactive than others in breathing life into the format. In the July 5, 2008 issue of Billboard, Hastings CEO John Marmaduke called on labels to lower wholesale CD prices in order to "extend the life of the CD and profit streams it generates for artists, labels and retailers."

Link: Coolfer's "State of the Compact Disc" report