"Did iTunes Kill the Record Store?"


Don't overlook the big box stores and how they sell popular music
Roughly Drafted is a very Apple-centric web site. Even though I love the articles, that bias explains why I do not cite them more. But this time Daniel Eran explains exactly what is happening in the music industry.

A look at the range of retail CD prices helps to establish what really killed the record stores. In an article about the demise of Tower Records, Elaine Misonzhnik observed:

"Wal-Mart, Target and Virgin Megastores (through the Amazon.com website) have been selling the recently released Christina Aguilera CD Back to Basics for $11.88. But Tower Records was selling the same CD for $17.99; F.Y.E. for $14.99; and Amarillo, Texas-based Hastings Entertainment, Inc. for $15.39."

Ah-ha! Record stores were trying to turn a profit, and simply starved to death. Dramatically cheaper albums, sold by big box retailers, killed the business model of stores hoping to stay in business selling CDs at list prices.

How can WalMart and Target afford to sell CDs for a third less than CD stores? Easy: the big box retailers aren't planning to make money on CDs, but rather offer CDs as loss leaders to generate foot traffic. Music stores were trampled to death under the feet of shoppers running to WalMart.

It's a version of the same model that Apple itself uses. Apple makes very little on the downloads available through iTunes. Apple makes it's profit on iPods and Macintosh computers. And very shortly, through Apple TV.

Eran goes on.

The remaining business of record stores has been catalog sales: the long tail of titles that are not available in the limited selection of CDs offered at a deep discount by general big box retail stores.

However, many of the record store chains that are closing simply couldn't afford to stock a huge selection of less popular acts, and were instead trying to compete directly against companies with no need to profit from CD sales.

That strategy has pushed customers interested in a broader selection to online sales: CDs from Amazon's catalog and downloads from Apple's increasingly large collection of music.

This is the free market at work. Yes, the demise of the record store is sad. But that would have happened regardless of what Apple did. The record stores couldn't compete with the low prices of the big box stores and had to close. Meanwhile, a digital catalog means that it costs less to distribute the not-so-popular music. This could include artists who aren't so well known or older albums. The means not only more music, but a wider variety.

Result = more available choice at less cost to the consumer but higher profits to the producer.

The rest of the article is just as interesting and worth your time.

— NeoWayland

Posted: Sat - March 3, 2007 at 05:17 AM  Tag


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