Borders issued its Q2 2008 earnings release today. For the quarter ended August 2, the company had a loss of $2.6 million on revenue of $758.5 million.

The company didn't offer many specifics in the release but a bit more information was available in the conference call. Music sales at Borders domestic superstores fell by $12.9 million in Q2 (music was responsible for a 2.1-point drop in comp superstore revenue). Based on last year's numbers, I estimate the year-over-year drop in total (not comp) music sales in Q2 in the 19 to 20% range.

According to the conference call, music now accounts for less than 7% of company revenue (it was 7.3% in fiscal 2007) and is its lowest-margin category. Borders did not specify the percent drop in the music category. CEO George Jones said inventory levels for all product categories have been reduced over 14% and has seen its market shares hold up well on new releases. (Most of the reductions in book inventories came from eliminating titles that sell fewer than one copy per year per store. No similar strategy for CD inventory management was mentioned.)

The only other part about music from the Q2 earnings release is:

The music category continued to experience negative sales trends resulting from declines in overall demand, and as planned, a reduction in inventory and floor space devoted to the category.

Here's the part about music in the Q1 earnings release:

To address declining sales in the music category, as well as increasing space available for improved merchandising presentation and expansion of higher margin categories, the Company has begun reducing inventories and reallocating floor space in its stores.

Those reductions and reallocations, combined with the CD market's natural sag, resulted in a 25.8% Q1 2008 drop in music sales. In fiscal 2007, comp store music sales were down 15.1%.

Also mentioned by Jones during the conference call was Borders' plan to roll out interactive kiosks to all Borders Superstores later this year.

Posted by Glenn at 2:00 PM | Link
|Brick-And-Mortor Retail|

Entertainment retailers are having mixed success in lessening their dependence on CD sales. Hastings reported lower earnings earlier this week. Its comp revenue was up 0.6% and gains in other product categories helped make up for an 11.7% slide in music sales. Gross margin was up slightly, and SG&A as a percent of revenue was up a bit over a percentage point.

Yesterday, Trans World reported a loss of $19.2 million on lower total and comp sales. Through the first six months of the year, Trans World has lost $31.1 million, up from $19.1 million last year. The retailer, which operates chains such as f.y.e., said it was "on plan for the quarter." Some fundamentals, however, weakened. Gross margin decreased and SG&A as a percent of revenue increased. Inventory reductions are a positive step toward using capital more efficiently, but much of that reduction can be attributed to the closing of 174 stores since the end of Q2 2007.

For labels, there most positive aspect of Trans World's Q2 was its commitment to the CD. The company expanded it stock of secondary and tertiary CD titles. While a third of the open orders are yet to be received, Trans World said it is "already seeing an improvement" in catalog sales and it is committed to improving its market share.

And there was word today on the company's longtime struggle to incorpore digital downloads into the brick-and-mortar shopping experience. Two stores currently have a download kiosk that works with most devices (including the iPod) and offers over two million tracks. Forty stores will have the kiosks by fall. The company has for years clung to the idea that kiosks can be successfully integrated into its stores. These new kiosks are an improvement on the mix-and-burn kiosks currently in stores, but they are likely to have limited appeal and limited success.

In spite of a few positives, labels should look at Trans World's Q2 with a bit of trepidation. Even though Warner Music Group said in a conference call last week that none of its accounts are in or near a state of financial distress, one must wonder how long Trans World's transformation will take. The company is constantly in the red, and it is downright stubborn in its goal of incorporating digital kiosks (it has been going on, with few results, for years). Labels cannot afford for such a large retailer to stumble much further.

Posted by Glenn at 11:27 AM | Link
|Brick-And-Mortor Retail|

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

Posted by Glenn at 10:14 AM | Link
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The CD format showed to be of waning importance for Borders as the company issued a press release for its Q1 2008 results. Music sales dropped 25.8% versus the previous year. The company attributed the decline to negative sales trends as well as a planned reduction of inventories. No data was given for same-store results in the music category. The filing does indicate there were no closings of Borders stores during the quarter (14 Waldenbooks stores were closed during the period), so it is likely same-store sales represent all or nearly all of the 25.8% drop in music sales.

Borders' same-store music sales dropped 13.1% in Q3 2007, 14.2% for fiscal 2007 and 15.1% in fiscal 2006.

The company is attempting to reshape its digital footprint, though I'd bet music companies are not likely to feel much difference. Yesterday Borders announced it has stopped outsourcing its online store to Amazon.com and re-opening its own online storefront. In addition, Borders is testing concept stores that will have digital centers where customers can download music and books, research family histories and print photos.

Posted by Glenn at 9:13 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

Trans World, which operates f.y.e., Suncoast and other retail chains, posted a $11.8 million first quarter loss. Total sales dropped 19% to $233 million and same-store revenue dropped 6%. Same-store music sales dropped 23% on a comp basis while sales from the top 50 titles dropped 30% on a comp basis. CD sales accounted for 37% of revenue, down from 44% the year before.

During the conference call, president and COO Jim Litwak said the company is committed to improving its music market share. CFO John Sullivan said stores have reduced by 10% the square footage of CDs and they see an opportunity in "secondary and tertiary genres."

The company has been searching for success with in-store digital kiosks. It will soon test a music download service at stores in Albany, NY and the Mall of America in Bloomington, MN. The service, which has yet to have tracks from all four major music groups, will reportedly download music to iPods and other portable music players. Although the article does not mention formats, the implication is the service will offer MP3 files.

Trans World has tried to get its Mix & Burn kiosks off the ground for a number of years but has appeared to have little to no success. A year ago the company said the kiosks were showing "promising, but still inconclusive results." Monday's article in the Albany Business Review says the Mix & Burn kiosk at the Albany store "was shrunk and moved to a corner as part of a recent downsizing of the store."

Go here for the 8-K filing with a transcription of the conference call.

Posted by Glenn at 12:45 PM | Link
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Entertainment retailer Hastings reported improved Q4 earnings and slightly lower revenue for fiscal 2007. (Read 10-K filing.) Comp-store music revenue was down 15.3% in fiscal 2007 (compared to a 9.3% decline in fiscal 2006 and 2.9% decline is fiscal 2005). In fact, music was the only one of the top eight product categories to decline in fiscal 2007.

The bad news for labels is that falling CD sales will result in fewer titles being stocked -- a painful double whammy -- that will result in even lower CD sales. For fiscal 2008, the company has budgeted $5.3 million to reformat 35 stores to reduce the retail space dedicated to music by 15-20%.

Posted by Glenn at 6:11 AM | Link
|Brick-And-Mortor Retail||Earnings Releases|

Seems like I'm the only person who thought Sony BMG's download cards were a good idea. Little plastic cards that are redeemable for music downloads? At least one other person likes the idea. On its blog, Phonelopie, Toronto Montreal indie record store Phonopolis encourages labels to sell download codes -- not cards, but codes -- and offers a rough sketch of how it could work.

Stores would stock a larger number of codes than they would CDs (they would of course still stock CDs). They would not immediately pay for these codes, however. The lack of immediate cost, and small amount of space that these codes would take would allow small record stores to carry a wider selection of stock and larger numbers of individual titles. The stores would validate the mp3 codes at the point of sale. During the validation process (which would be on a distributor or label website), the store would pay for the product.

For the stores, they could carry a wider selection in a smaller amount of space. Having a larger number of codes for each individual title, they would hopefully avoid running out of 'indie hits' after an especially good Pitchfork review. ...

For consumers, there are benefits to going to a record store, the first of which is getting away from your computer, getting out of the house, and talking with someone who is knowledgeable and enthusiastic about music. ... There are other possible benefits, perhaps labels could print extra copies of the CD booklet that could be included with sale of the code.

I'm sold.

Lables that have their own download stores and include download codes with their vinyl releases could throw this together more easily than others. Everybody else would need a third party (DiscRevolt comes to mind). If payment could come at the time of purchase, stores would be more likely to take a risk and carry a slow-moving title. After all, it's just a code. There is zero risk.

One has to wonder how exactly these codes would be merchandised. Hand-embroidered cards? Written on napkins? Compiled in the sort of catalog that used to grace every record store's counter? But this is an indie store recommending the product, so you have to figure it has a snowball's chance.

(Thanks to Sean from Said the Gramophone for the link.)

Posted by Glenn at 3:12 PM | Link
|Brick-And-Mortor Retail||Digital Distribution|

Coolfer is taking a day off from digital and mobile news items and issues.

• CBC Radio 3 has announced its shortlist for Canada's best record store. (Exclaim)

• A profile of Minneapolis retail legend Electric Fetus, which is celebrating its 40th anniversary this year, and Treehouse Records. Said the owner of Fetus, "It's always been a challenge. You just have to change with the times." (Star Tribune)

• A Place to Bury Strangers has issued a limited edition 7" box set through Vacancy Records. (Pitchfork)

• Best Buy reported earnings two days ago. Not much was mentioned about music sales other than CD sales were down. "A double-digit gain in comparable store sales of video gaming software and hardware, which was constrained by an industry-wide hardware inventory shortage, was partially offset by comparable store sales declines for DVDs and CDs." (Best Buy SEC filing)

• Schoolkids Records in Chapel Hill has closed. (Chapel Hill News)

• Sign of the times: In Portland, a record store has been replaced by a sports bar. (The Bee)

Posted by Glenn at 10:46 AM | Link
|Brick-And-Mortor Retail|

Update: Tesco denies it has pushed labels for lower wholesale costs.

Powerful retailers sure do have a knack for perfectly timing their requests to labels. UK grocery and merchandising chain Tesco, which represents about 13% of British music sales, is putting pressure on labels to drop their wholesale CD prices. From Financial Mail:

Tesco is using its considerable retail muscle to press leading music groups into cutting their takings from CD sales. One source said it was looking to keep up to a third of the retail price it charges for CDs. ...

The industry estimates that on an average-priced CD selling for £9.99, about 30.5% will be kept by the retailer - though for supermarkets this is likely to be considerably less - 44% will go to the record company, 8% to the musicians and composers and 17.5% in tax.

(Note that the 8% that is said to go to "musicians and composers" is the royalty paid to the publisher. In the U.K., the statuatory mechanical rate is 8.5% of the published price to dealer or 6.5% of retail price. Artists royalties from their record labels are separate.)

The article says Tesco can represent up to 40% of sales for a high charting album. Placement alone is reason for some sales, but there's no doubt hit albums benefit from the chain's small markup.

In the U.S., Wal-Mart, the nation's leading music retailer, is pressuring for a significant drop in wholesale prices.

Posted by Glenn at 2:35 PM | Link
|Brick-And-Mortor Retail|

A post at Silicon Alley Insider talks about Borders' hiring of JPMorgan and Merrill Lynch to explore strategic alternatives. The company has liquidity issues and will suspend its quarterly dividend.

Peter Kafka hints the previous strategic plan, the digital kiosk, isn't going to turn things around. I agree. It's the kind of quick-fix band aid that doesn't address deeper and more fundamental issues. A month ago I posted about the company's new hybrid stores that hope to use kiosks to get digital sales out of brick-and-mortar shoppers.

Kakfa also made mention of Barnes & Noble's lower quarterly profit.

Posted by Glenn at 10:30 AM | Link
|Brick-And-Mortor Retail|

The old way of selling CDs looks to be dying faster than overall CD sales. Trans World's fourth quarter revenue dropped a whopping 23% and 2007 sales revenue dropped 14% (read press release and 8-K, which has a transcript of the conference call). Net loss for fiscal 2007 was $99.4 million. Comp store sales dropped 8% on the year.

In the conference call, President and COO Jim Litwak said Trans World's comp store music sales dropped 28% in Q4, the top 50 titles 35% in Q4 and the top 50 video titles were down 12%. For the year, comp store music sales dropped 23%.

Store closings and one less week in Q4 definitely affected sales, and the company admitted that its "transition to a full entertainment retailer is taking longer than expected."

Posted by Glenn at 11:50 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

USA Today has a look at Borders' first of 14 concept stores set to open in 2008. The stores have digital centers where customers can download music and books, research family histories and print photos. The first opened in Ann Arbor; 13 other stores are set to open in ten states.

At the Borders concept store, new themed book islands are built around lifestyle genres, including travel, cooking and health. The digital centers, meantime, are geared to welcome people of all levels of tech know-how. Staffers will guide customers through the process of burning music to CDs, downloading songs to most digital music players (except iPods, which, for now, work only with Apple software) or books to a Sony digital reader.

The hubs' incompatibility with iPods is the obvious roadblock here. I have to wonder how much demand exists for CD burning. I can't imagine using somebody else's computer to download music. Would I go elsewhere to use a computer to buy concert tickets or book a flight? No, and I wouldn't use Borders' computer to get music I can get at home. There are too many steps to get it from point A (Borders) to point B (my hard drive).

The kiosk (or hub) idea has struck out a few times. Not that I hang out in f.y.e. stores a lot, but I've never seen anybody within ten feet of the mix-and-burn digital kiosks in the two stores I have frequented in the last year, and Trans World has stopped mentioning their tests in conference calls (which leads me to believe they're not successful). Starbucks gave the mix-and-burn thing a shot and ditched the program after two years of testing. Turns out download cards are far more popular there.

HMV is testing similar digital hubs at a few stores in England. Time will tell if somebody can figure out a way to make the kiosk work.

Posted by Glenn at 11:22 AM | Link
|Brick-And-Mortor Retail|

On the heels of news that it would drop DRM from its downloads, Sony BMG has announced it will sell artist-branded gift cards redeemable for MP3 files. Consumers will redeem cards an initial run of 37 different cards at Musicpass.com. Though its catalog will eventually be available at the proven digital retailers, Sony BMG's move shows a desire to develop its own solution. Not all of the money will not be kept in-house, though, as the cards will be available at 4,500 brick-and-mortar retailers (Best Buy, Target, Fred's, f.y.e., Winn-Dixie) buy the end of the month.

"We see MusicPass as a great way to bring digital music to the physical retail space," said Thomas Hesse, President, Global Digital Business & U.S. Sales.

The cards will cost $12.98 and will get the owner the album as well as bonus tracks and a digital booklet.

The $12.98 price tag leads me to believe a few things. First, Sony BMG is counting on cards being purchased as gifts for others; this is implied by the press release as well ("According to the 2007 American Express Gift Card Survey, Americans plan to spend 25% of their total gift spending on gift cards, up from 13% in 2005.") Two, Sony BMG must believe many people would spend more on a gift for others than they would on a purchase for themselves. At nearly $13, an album download with no resale value and no tangible nature doesn't compare well to the CD format. In addition, judging from a couple of the accounts (Fred's and Winn-Dixie) I would assume there is a hope that these cards will reach mainstream consumers who are not yet part of the digital crowd (what's another $13 on top of a huge grocery bill?).

This is a promising and positive development -- but just one of the many developments needed to breath life into music retail products. What should be remembered is this product was made available by the removal of DRM from Sony BMG's downloads. Not only do labels get to launch new products and services while circumventing iTunes, they get to develop many more sales channels than in the DRM days when Apple was the only viable option.

Posted by Glenn at 9:30 AM | Link
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• Roadrunner Records and music exec Tom Lipsky, formerly the CEO and president of Sanctuary Music Group's North American operations, have formed a joint venture that will release music by classic rock artists. Almost three-quarters of Roadrunner Music Group, the parent company of Roadrunner Records, was purchased by Warner Music Group in January 2007. (Billboard.biz)

• Last week Borders released its Q3 2007 earnings. Same store music sales were down 13.1% over Q3 2006. That's a big drop but not as bad as Trans World's Q3 music sales decrease (21%), and not as bad as the overall CD (about 20%) and album decrease (about 14%) in 2007. (Borders Earnings Release)

• Ben Sisario has an article on the growing number of Western acts performing in China. It's a well-rounded look at an emerging market that may offer clues of the future of the music business (the ubiquity of corporate sponsorships, for example, and labels' acceptance of piracy). (New York Times)

• A profile of Koch Distribution. (Newsday)

• The Winnipeg Sun started a four-part series on the changing music industry. The first installment looks at CD sales in Canada. CD sales dropped 19% from January to August of this year. The cause of that decline is definitely up for debate, and the article examines a few possibilities: piracy, the "today's music is no good" explanation and a consumer backlash against "overpriced" CDs. To no surprise, the article didn't even mention 2007's extremely thin release schedule. Whether compromised of future classics or pop fluff, a busy release schedule would have helped sales this year. (Winnipeg Sun)

• Although there is much debate over file-sharing's impact on sales in Canada, the Canadian Recording Industry Association is not happy with the country's digital laws and wants new laws to encourage investment and improve consumer education. (London Free Press)

• A profile of legendary music exec Frank Dileo, who moved to Music Row in January 2007 and is now starting a management company and plans to launch a publishing company. (Nashville Scene)

Posted by Glenn at 9:28 AM | Link
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Entertainment retailer Trans World posted a net loss of $14.3 million in the third quarter of 2007. Revenues dropped 12% to $260.6 million from $297.7 million last year. The company operated 13% fewer stores during the quarter, and same store sales were down 4% year over year.

Said Robert Higgins, chairman and CEO, in the press release, "We continued to achieve positive comparable store sales in home video, video games, electronics and boutique during the third quarter, however, these results did not offset the decline in music."

During the conference call (read transcript), president and COO Jim Litwak revealed that same store music sales had declined by 21% (same as the Q1 decline, see below) and that music had comprised 40% of total revenues for the quarter (versus 48% last year). Video game sales increased 29% on a comp basis while home video increased 8%.

Trans World's problems mirror those of the music industry, to which it has tied a great deal of its fortunes over the years. As record labels try to offset the slide of the CD with other revenues, Trans World is shifting its focus to other products and away from the CD. The company's transformation is painful, but at least there are other physical formats to replace the CD.

Earlier this month came news that Trans World had received a buyout offer from its CEO, the company's largest shareholder. The $5 per share offer represented a 29% premium over the price at the time. Trans World closed today at $5.19. Said Sherwood Investments' Julian M. Benscher of that offer, "We are highly confident that an auction of the company would result in a sale in excess of $8 per share." Sherwood owns about 4.3% of Trans World's shares. The market obviously has its doubts that a bid of $8 per share is forthcoming. Some may want to take a lower amount and run. The proper restructuring of Trans World will be a process better suited for the long-term outlook and intestinal fortitude of private ownership.

Previously: Trans World's Q1 2007 earnings was a $9.1 million loss. "Music sales were down 21% on a comp basis, and the company's top 50 experienced a 32% drop on a comp basis. Music represents 44% of sales, down from 52% last year."

Posted by Glenn at 4:55 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

• Trans World, owner of such music retailers as f.y.e., received a buyout proposal from its largest shareholder, Chief Executive Officer Robert Higgins. The offer of $5 per share is a 29% premium over Thursday's closing price. Privately-owned companies are well suited to make the kinds of turnarounds that are needed in entertainment retail these days. But Trans World is going to turnaround and become what? f.y.e. is a retailer without an identity, and any plan to bring more digital into brick-and-mortar is automatically suspect. (Reuters)

• Jeff Leeds does a solid story on the majors' new thang: the 360-deal artist contract. Leeds talks to a few detractors, who not surprisingly are in the lines of business labels are currently entering. It's way too early to say much about the deals other than the fact that labels will sign more and more of them. At the root of the issue is a very basic question: Wouldn't it be good for everybody -- artist, label, fans -- if labels put less pressure on album sales? Follow that with another question: Should the artist feel comfortable lumping together so many revenue streams? It's gonna be a fun couple of years until we get a lot of solid case studies with which to form a better opinion. (New York Times)

• It's official: Radiohead will release In Rainbows on CD through ATO Records. The band will release the album on its own imprint, TBD Records. Maybe this isn't a good time to cue all that "The CD is Dead" talk, huh? (Billboard.biz)

• Microsoft has entered into talks to acquire Musiwave SA, maker of software that allows mobile operators to offer various paid products to their subscribers. Microsoft says if the acquisition goes through it will integrate Musiwave into its line of products (such as Zune and Windows Live). (Information Week)

• Koch has inked a physical and digital distribution deal with Fat Beats Records. Upcoming Fat Beats albums will be by Akrobatik and Black Milk. (All Hip Hop)

• The Guardian has an article on mobile music services and how jazzed up labels are about them. The head of digital at Universal's international division believes such services could offset falling CD sales without one year. Analysts aren't so sure. One thing they may be overlooking, unless they've happened to buid it into their industry revenue models: As these kinds of subscriptions take off, it's very likely the rate of CD sales decline could actually increase. Subscriptions may substitute for music purchases rather than instigate an up-sell. (The Guardian)

• EMI Group has added food executive Pat O’Driscoll to its investor board. O'Driscoll is the former chief executive of Northern Foods. I see a trend here. Former EMI CEO Eric Nicoli was previously the chairman of United Biscuits. (Variety)

Posted by Glenn at 12:22 PM | Link
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• HMV Canada has a different promotion for the upcoming Bruce Springsteen album. Not only will the purchaser get a free video and ringtone of the first single, as well as a limited edition lyric booklet, but HMV Canada president Humphrey Kadaner will offer a personal money-back guarantee. (Media In Canada)

• Sony BMG has licensed its music to social networking imeem.com. It joins Warner Music Group as the two (of four) majors to license their catalogs to imeem.com. (Variety)

• For whatever reason I find this really interesting: Jay-Z wants to rename New Jersey's Continental Arena after his Rocawear clothing company. The arena is currently home to the New Jersey Nets basketball team and the New Jersey Devils hockey team. What's odd is that Jay-Z is part of the ownership group that will take the Nets to Brooklyn soon (probably in time for the 2009-2010 season). Why would a part-owner of a Brooklyn-headed NBA team want his name on an arena in Jersey? Beats me. That horrible arena should be bulldozed ASAP, by the way. (Billboard.biz)

• Universal Music Group has acquired Belgian indie ARS Entertainment. (mi2n.com)

Posted by Glenn at 11:09 AM | Link
|Brick-And-Mortor Retail|

Yesterday U.K. retailer HMV announced its next-generation retail strategy. One store in the West Midland will be the test store. From the Times Online:

"After six months of refurbishment, HMV today unveils its solution – a 'compelling multi-channel social shopping space and experience' designed to attract the wifi-enabled shopper. The store, which measures 8,000 sq ft (750 sq m), contains digital kiosks that enable customers to download songs and video clips for free. Shoppers download the content on to a memory device, such as a USB memory stick, which they can then transfer to a PC, mobile phone or MP3 player."

A "social hub" will have iMacs while a "mini Apple store" will replace CD racks. A juice bar will sell smoothies and interactive screens will be found throughout the store.

Though Apple is mentioned throughout the article, there was no mention of one of the most important factor in HMV's in-store downloading success: the file format. Another important factor is whether or not consumers will bother using HMV's computers to do what they can do at home.

Posted by Glenn at 7:07 AM | Link
|Brick-And-Mortor Retail|

• The FCC has set September 20 as the date for a media ownership hearing in Chicago. It will be held at Operation Push National Headquarters on East 50th Street, from 4-11 p.m. This will be the fifth of six such town hall meetings. Here is my post on the hearing I attended last year in Nashville. (Radio Ink)

• Brit retailer HMV has experienced positive sales growth over the last 18 weeks. Total sales rose 12.2% over the period while same store sales grew 5.8%. Strong sales of DVDs and video games -- not music sales -- were behind the increase. (Billboard.biz)

• Ad-supported download site SpiralFrog has licensed the IODA catalog. That deal pushes SpiralFrog's catalog up about 1 million tracks to roughly 1.7 million (from 700,000). (Press release)

• Universal Music Group, which was preemptively sued by video site Veoh last month, has returned the favor by suing Veoh. The video site company, which counts Time Warner as an investor, has been blamed for "rampant infringement" and for following in the footsteps of "other recent mass infringers such as Napster." (Bloomberg)

• Some CD Baby stats posted by president Derek Sivers: 194,385 albums in stock; 170,379 (or 87%) have sold at least one copy; 129,014 digital albums offered; 123,168 (or 95%) of those digital albums have sold one or more units. Here's my favorite: 12% of CD Baby artists account for 90% of its sales. (CD Baby, via Digital Audio Insider)

• Jeff Leeds on how MTV is trying to remake its Music Video Awards as it's in a four-year ratings slump. "In shaking up its showcase event, the channel is not only aiming to reverse declines in the awards show's viewership, but also to generate buzz about several new efforts to connect with tech-savvy young viewers drawn to upstart brands like YouTube. ... MTV's own correspondents, as well as fans at the awards show, will snap candid camera-phone moments and post them on a new area of MTV's Web site called "You R Here." The most compelling photos or video recordings from Las Vegas may be presented during the channel's news segments." (International Herald Tribune)

• Eighteen Grateful Dead tracks will be available for download via the video game Harmonix video game Rock Band. Harmonix is a division of MTV Games. (The Escapist)

• Former FCC chaiman Mark Fowler supports a Sirius-XM merger. "If the two satellite radio companies, each only several years old, need to combine to be more effective competitors in an audio entertainment marketplace teeming with technological change and innovation, the government should not stand in the way." (Radio Ink)

Posted by Glenn at 9:25 AM | Link
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• National retailer Borders Group reported a 10.4% increase in sales for Q2 2007. With the help of the latest Harry Potter book, U.S. comp store sales were up 4.6%. Music sales "continued to decline," though no hard number was given in the release. I listened to the conference call, and unless I zoned out at some point, music sales were not mentioned. (Earnings release)

• Music and video distributor Handleman reported a loss of $17.7 million for the quarter ended July 28, 2007. Revenues were up 14% even though last year's loss was only $5.9 million. The company's music category revenues decreased by $13.8 million versus last year. (Press release)

• Sony has another rootkit problem, this time from a USB drive that contained software that installs a hidden directory. (The Register)

• Jupiter's Mark Mulligan on Nokia's new mobile music store, Ova: "So was it worth the wait? Well the devices were, the latter two Xpress Music devices in particular from a music perspective. The three way sync is also a nice, innovative alternative to dual delivery. But beyond that, the music service is a disappointment. The music subscription service is a PC only streaming service that does not support portable downloads and as such is a generation behind current offerings. And it begs the question, why is a mobile handset manufacturer launching a music subscription service which does not support portable downloads or mobile streaming? Similarly the download service is essentially a ‘me too’ offering, based around 99 cents, windows DRM wrapped single track downloads." (Mark Mulligan's blog)

• Ween has signed to Rounder Records.

• Curb Records has signed 16-year-old Ashley Gearing, who is in studio with producer Bryon Gallimore. (Country Standard Time)

Posted by Glenn at 11:33 AM | Link
|A&R||Brick-And-Mortor Retail||Mobile Music|

I spent some time looking over Trans World's Q2 earnings release and the transcript of the earnings call. The documents show a music-based retail chain that is struggling to retool is product mix and store design in a fast-changing market. Music sales continue to fall so fast that other products are not filling in the void.

The company lost $10.1 million on sales of $267.3 million, which was worse than the Q2 2006 loss of $7.7 million on sales of $298. million. In the first half of the year, Trans World has lost $19.1 million on sales of $553.6 million. In the first half of 2006, the company lost $14.8 million on sales of $568.8 million.

• Comp store sales decline 6%. Total sales dropped 10% and Trans World operated 12% fewer stores.
• Comp store music sales declined 19% and represents 43% of total revenues. In Q2 of 2006, music represented 51% of total revenues.
• Comp store sales of electronic, accessories, and boutique increased 16% and represent 13% of total revenues.
• There are a few positives. Gross margin increased to 36.6% from 35.6%. SG&A as a percent of sales declined to 39.5% from 40.2%. Cost of sales dropped to 63.4% from 64.4%.
• Trans World has closed 29 stores to date and has plans to close another 45 to 50 stores by the end of 2007. Right now the company operates 963 stores.
• The 27 remodeled, prototype stores have performed well but more remodels are on hold until after Christmas.

There was no mention of the in-store, mix-and-burn kiosks in the earnings call. In May, president Jim Litwak said the in-store kiosks had given "promising, but still inconclusive results." I had a chance to see one of those kiosks in person a few months ago at a Manhattan f.y.e. store. The kiosk's interface and entire user experience was so poor that I cannot imagine Trans World giving the product a broader roll-out.

Additional reading: Coolfer post on the 2007 Q1 earnings release and call.

Posted by Glenn at 3:33 PM | Link
|Brick-And-Mortor Retail|

• Related Companies will purchase the 11 North American Virgin Megastores from Virgin Entertainment Group. Not familiar with Related? The company develops, finances and owns real estate properties around the country. It developed the Time Warner Center in Manhattan as well as numerous residential properties in California, Florida and the Midwest. Related owns the Equinox chain of fitness clubs, is part of the investor group that took resort & hotel chain Kerzner International Limited private, and manages the high rise residential building at Astor Place in Manhattan. (Press release)

• Eighties pop band Dodo and the Dodos won its distribution rights case against Sony BMG in a Danish court. The ruling stops Sony BMG from selling the band's music downloads without the band's consent. The ruling's greater impact is yet to be determined. (The Copenhagen Post)

• The Russel Simmons-backed GlobalGrind, a hip hop-oriented start page, has received about $4 million in funding. (paidContent)

• News.com's article on artists' lawsuits against online music stores, such as the copyright infringement lawsuits filed by Eminem's publishing units. "Don't expect these lawsuits to go very far. To start, Apple is likely indemnified against such lawsuits, according to copyright attorney Jay Rosenthal. But Rosenthal speculates that the real target of the lawsuits isn't Apple or iTunes. What the musicians and writers really want is to challenge the claim by record labels that they have the right to negotiate Internet sales on their behalf." (News.com)

• Here's an article on the greening of the music industry. Much of it has come on the touring end. Said Neal Turley of Sustainable Waves, which builds eco-friendly concert equipment, "It's really amazing in the last three years where this has come. When we were trying to make this happen 10 years ago, it was a pretty tough sell. Five years ago, it was starting to turn the corner, and now it's just amazing." (McClatchy Newspapers)

• In Tony Sach's post about Matador Records' "Buy Now, Get Early" early bird offering, this line really stands out and explains why such a program can work for an indie and might fail for a major: "The New Pornographers' fan base is a lot smaller than, say, Rihanna's or Daughtry's, but it's also a lot deeper. New Pornos fans want those B-sides and other ephemera that the 'Buy Early Get Now' program is offering, and they're happy to pay to get them. Most major label acts, however, live and die by their latest single; their fan base is wide but shallow." (The Huffington Post)

• An analyst believes a judged block of the FTC's attempted block of a merger of Whole Foods and Wild Oats is a good sign for Sirius and XM and beyond. "While mergers are very fact-specific and the judge's opinion has not yet been made public, we suspect the Whole Foods decision will give XM-Sirius and Google-DoubleClick some new legal ammo to argue for defining their relevant markets broadly, which could reduce antitrust concerns about potential anti-competitive effects. At a minimum, it gives the reviewing agencies some food for thought." (Radio Ink)

• Dove Award-winning band Switchfoot has left Columbia Records and plans to put out future releases independently. (Breathcast)

Posted by Glenn at 9:23 AM | Link
|Brick-And-Mortor Retail||Legal||Publishing|

• Garth Brooks' catalog will once again be available through all retailers through his own Pearl Records. For two years Brooks had an exclusive deal with Wal-Mart. His next release will be a three-CD, "best of" box set with a $12 wholesale cost (which puts it in the $20 list price area). His catalog will be reissued as well, with a $7.85 wholesale cost. Wal-Mart did not report Brooks' sales to Soundscan, but publicly Wal-Mart boasted that Brooks' six-CD box set quickly went platinum and "achieved Wal-Mart's highest volume of sales ever for the first day of a musical release." (Hollywood Reporter)

• LiveNation has introduced tools to help people search for and buy tickets. The Exclusive Concert Tools page has three items: a concert search module that can be inserted into personal web pages, a venue widget and a search bar add-in for Internet Explorer 7 and Firefox. Also available s a LiveNation Google Gadget, a U.S. concert and ticket search. (Press release)

• ASCAP and BMI have launched RapidCue, a website that allows members to enter cue sheets online. (Billboard.biz)

• Parallel Entertainment is launching a record label with Jeremy McCombs as the first artist. The production and management company is known for its work on the Blue Collar Comedy Tour. On Parallel's talent roster are Jeff Foxworthy, Bill Engvall, Larry the Cable Guy and Reno Collier. The company already has a record label, Jack Records, a venture with Warner Bros. Records that has released mostly comedy albums. (Music Row)

• Hypebot has a brief interview with RealNetworks about Rhapsody's plans for Universal Music Group's DRM-free downloads. Tracks will be 256kbs, DRM-free MP3s. Unlike the way iTunes sells EMI's DRM-free files, Rhapsody will offer only a DRM-free version and will not sell a protected version. Rhapsody subscribers will pay $0.89 per track for UMG's MP3s while non-subscribers will pay $0.99. (Hypebot)

• Clear Channel will host a shareholders meeting on September 25 to allow investors to vote on its $19.6 billion privatization plan. Two private equity groups already very involved in the music business, Bain Capital Partners, LLC and Thomas H. Lee Partners, will offer $39.20 per share. (Radio Ink)

Posted by Glenn at 10:13 AM | Link
|Brick-And-Mortor Retail||Rhapsody|

• Universal Music Group has invested in Loud.com, a hip hop-slanted portal and networking site. (paidContent)

• GodTube.com is a new, Christian-oriented video site now in beta. (Billboard.biz)

• Music Row points out that country album sales are down 29.3% this year, a hit album by Taylor Swift notwithstanding. (After Carrie Underwood and Rascal Flatts had such a huge year, a drop was inevitable.) The end of the year, though, will have some big names: Kenny Chesney on September 11, Rascal Flatts on September 25, Brooks & Dunn on October 2 and Carrie Underwood on October 23, plus unconfirmed rumors of a Keith Urban greatest hits package. (Music Row)

• At the Marketing to Men 18-34 conference in New York, the big topic was branded entertainment, i.e., music with a ton of product placement. (Billboard.biz)

• Judging from the information in Rob Mitchum's article on concert first aid stations, indie rock shows are far safer than metal shows. Only one Pitchfork Festival attendee required transport to a hospital, while a mid-July Ozzfest concert saw "two people with stab wounds, numerous people with dislocated shoulders, facial trauma, sutured up a lot of faces, that kind of stuff, especially from mosh pits." Because of the age of attendees, classical music concerts actually have the highest mortality rate. The winner for highest rate of medical tent visits goes to gospel/Christian events. (Chicago Tribune)

• From 2003 to 2006, the percent of U.S. camera phone users who emailed/transmitted photos wireless dropped 22 points. Is there a parallel with over-the-air music? "People will download music OTA while it is a novelty then they will sideload all their MP3s to their music phone (sideloading is primary way to get music on a music phone). Just like people expect a camera on their phone they will expect an MP3 player, but the carrier will not see any revenue from the use of this feature." (Ad-Supported Music Central)

• Univision is facing another bribery lawsuit, this one brought by Los Angeles-based Platino Records. A previous lawsuit alleging the bribing of radio stations was brought by a former VP for Univision's Fonovisa Records. The company's equity partners are interested in selling some non-core assets, such as the music division, to help pay off debt. (Los Angeles Times)

• Long Gone John has put his label, Sympathy for the Record Industry, up for sale. John Reis (Swami Records) has put in a bid of 30 very expensive llamas. (LA Weekly)

• Localism works in music retail. In Fort Lauderdale, Radio-Active Records is within five miles of Borders, Target, Circuit City, Barnes & Noble and Best Buy, and yet it is growing. "Our biggest strategy is community involvement. It's why Virgin [Megastore] couldn't survive down here: They don't pay attention to what music locals are interested in. I go to the clubs, I see what people are dancing to, and I order that stuff in the store." (Broward Palm Beach)

Posted by Glenn at 8:06 AM | Link
|Brick-And-Mortor Retail||Marketing||Mobile Music||Universal Music Group|

• Album sales were down 2% last week and were 13% lower than the same week last year. For the year, album sales are down 14% (a number that is improving as the months pass). Digital track sales were up 1% last week and were 39% higher than the same week last year. For the year, digital track sales are up 48%.

• Terra Firma gained approval from 91.5% of EMI's shareholders and finally has control of the music group. (The Guardian)

• Virgin Entertainment Group North America posted a 15% comparable store increase last quarter. That's what shutting down underperforming stores will do for you. CEO Simon Wright says the chain's new-ish loyalty program has 150,000 members. The only thing I have to add about Virgin is that the Union Square store was practically a morgue when I walked in on an early Saturday afternoon a few weeks ago. (Billboard.biz)

• Douglas Wolk has an article on the inevitable Internet leak and how labels approach them. Its facts are almost correct, but I've heard from one label that Wolk got some of the details wrong. Doesn't change the main thrust of the article, though. I have a completely unproven theory that a leak does less damage the farther it is from the album's release date. When awareness of the leak comes near the album's release date, I think there is a convergence of awareness (album promotion plus leak hype) that is more detrimental to album sales. (Spin, via Idolator)

• PureTracks is the first Canadian retailer to offer EMI downloads in unprotected MP3 format. Even though the tracks will cost CDN $1.29, the press release does not indicate if the downloads have a higher sound quality than the standard DRM'd, WMA downloads. I really think it would be a mistake to raise the price and not raise the bit rate in tandem. (Press release)

• Epic signed Alkaline Trio. As Kings of A&R points out, major labels are attracted to bands that have done the dirty work and built up a following (not a make believe Internet following, mind you, but a real following based on years of touring and recording). There's less risk, less tour support and a better payoff at the end of the day. (Press release, via Kings of A&R)

• Good news for the concert business: The Eagles are planning to tour extensively in 2008. (Hollywood Reporter)

• Lots of articles have been written about iTunes reaching three billion downloads. All of them missed a few key points. First, iTunes is not just an American store. It has stores in many countries, and they all contributed to the sales of three billion. Sales have picked up as more iTunes store have launched. Second, it doesn't matter what profit Apple makes from iTunes (yes, there is a profit in there). The iPod would not be as successful without the iTunes store. They're a package deal. If you're going to look at profits of one, include the profit of the other.

• I'll be back in Nashville in two weeks and will have to check out the city's traffic lights that play country music. (The Tennessean)

Posted by Glenn at 12:23 PM | Link
|A&R||Brick-And-Mortor Retail||EMI||iTunes|

• Mobile carrier Amp'd, which counts MTV and Universal Music Group as its investors, has shut down its service and owes over $100 million to creditors. The company had filed for bankruptcy last month. (Variety)

• Sanctuary has sold its 49% share in the Rough Trade label to the Beggars Group for £800,000 (US $1,651,507). (The Guardian)

• XM and Sirius promised that in the event the two satellite companies merge, the companies will offer a variety of subscription packages. The lowest-priced package would get 50 channels and cost $6.99 a month. Said an analyst, "If the Department of Justice approves the merger, it will be difficult for the FCC to say no." (Reuters)

• Dallas-based hip hop label Clout Records has inked a distribution deal with EMI. Cloud will release Lil Prince's Young and the Wreckless on September 25. (Hip Hop Elements)

• Kansas City-based rock band Vedera has signed with Epic Records. (MySpace, via Kings of A&R)

• Oklahoma state representative Randy McDaniel has proposed a study to find out what incentives Nashville and other cities offer musicians. McDaniel sits on a committee that deals with Oklahoma's tourism, arts and culture. (The Journal Record)

• Ted Cohen, a former EMI exec and now part of TAG Strategic consulting, is on the board of advisers at Txttunes. The company just announced the launch of its text-based distribution and social networking service. Fans can use their cell phones to purchase and download MP3s. Artists can use Txttunes to send text messages to fans. (Press release)

• A profile of Ventura, CA-based Salzer's, where vinyl sales are up 20% this year. (Ventura County Star)

• AllHipHop.com got a makeover and has some new features. The site has partnered with Amazon.com to create an e-store that uses Amazon.com's technology and content. AllHipHop is working with iTunes on a Black Music Month promotion. The site will give away 250,000 promotional codes that can be redeemed for a free mix tape at iTunes. (Press release)

Posted by Glenn at 8:03 AM | Link
|A&R||Brick-And-Mortor Retail||Mobile Music||Sirius||XM|

• Hallmark has launched its "Use Music Summer Tour." The seven-city tour coincides with the launch of 100 new Cards with Sound. In addition, the retail chain now offers iTunes gift cards at most of its stores. (Press release)

• The advocate general for the European Union of Justice said ISPs are not required to identify subscribers in civil copyright infringement cases. Promusicae, Spain's music trade group, had sued Spanish ISP Telefonica to force it to turn over information on subscribers suspected of sharing music via KaZaA. (Ars Technica)

• Blockbuster had its credit facility trimmed by $50 million and is thinking about reducing the footprint of some stores. (Video Business)

• What does Terra Firma have in mind for EMI? The Independent puts forth some good ideas. (The Independent)

• Universal Music Group chairman and CEO, Doug Morris, was elected to the board of directors of Columbia University's National Center on Addiction and Substance Abuse. Morris is a Columbia graduate. (Earth Times)

• The worst prediction of the week comes from Music Week editor Martin Talbor. On Prince's direct marketing campaign he told Time magazine, "If we keep moving down this particular route, companies will only release records that are sure home runs. That means either stuff by established artists or unknown artists doing cover versions. There is the danger that it will no longer be worth it for companies to invest in new, up-and-coming artists. And if record companies don't invest in them, who will." (Time)