moneybox
The CD Is Dead!
Long live the CD!
By Daniel Gross
Posted Tuesday, March 27, 2007, at 4:01 PM ET

Mozart wrote only one Requiem, but in recent years, music journalists have written about 80 requiems for the compact disc, mostly in the key of boo-hoo major. Data from the Recording Industry Association of America show that between 2000 and 2005, the number of CDs shipped fell 25 percent to 705.4 million, while their value slipped 20 percent, from $13.2 billion to $10.5 billion. During the first six months of 2006, CD sales dropped 14 percent more. And as Ethan Smith wrote in the Wall Street Journal (subscription required) last week, CD sales are down another 20 percent in the first quarter of 2007. On Monday, Jeff Leeds, writing in the New York Times, penned an obituary for the CD, which has been driven into oblivion by consumers' preference for digital singles over albums. Last year, hundreds of music stores closed, among them the 89 outlets of the greatly missed (subscription required) Tower Records.

Conclusion: The CD is dead!

Except, it's not. Last Sunday, Paul de Barros of the Seattle Times chronicled the growth of Silver Platters, a local chain of CD stores that just took over an old Tower Records space. Meanwhile, savvy new-era businesses are jumping into the CD business. The same day Smith's piece appeared in the Journal, Starbucks announced its record label would issue its first CD this summer, from Paul McCartney. Earlier this month, Amazon launched a classical music retail outlet, capitalizing on the genre's impressive 2006 comeback, which was driven by massive CD sales from the unholy trinity of cheesy, nonclassical classical artists: Andrea Bocelli, Josh Groban, and Il Divo.

Clearly, it's trickier than ever to make, market, and sell CDs. It's an industry in crisis. But CDs are still a significant business. All the kids, and many adults, have iPods. But plenty of baby boomers still buy the shiny discs; CDs account for three-quarters of all music sold.

What we are witnessing is not so much the imminent death of CDs but the death of the old methods of selling CDs. It's still possible to make money in the CD business—any business with more than $7 billion in retail sales should allow someone, somewhere, to make a profit. The incumbents are getting killed, but upstarts are thriving, using different methods.

Legacy music retailers and manufacturers now face many of the same difficulties as American auto companies. They built a business infrastructure—national chains, huge outlets in high-profile locations, layers of management—predicated on selling massive and growing quantities of CDs for $15.99 and up. Like the American automakers, they found that new competition—from iTunes, file-sharing, and online retailers—severely cut into their margins, their market share, and their pricing power. In such an environment, companies with significant capital invested in stores and substantial overhead costs get destroyed. And as they fail, they do so loudly, inspiring widespread pessimism.

Yet the new rules open opportunities for upstarts who approach the business of making and marketing CDs in a fundamentally different way. Unlike fallen chains such as Tower, boutiques such as Silver Platters and Rasputin in San Francisco don't spend on expensive national advertising. They're more like art-house theaters. Since they cater more to music aficionados than to the masses who used to flood into HMV for the latest Mariah Carey CD, the demise of the blockbuster CD doesn't put a crimp in their sales.

In the age of file-sharing and iTunes, people simply aren't willing to pay $16 for a collection of songs they may not want. That proved to be fatal for Tower Records. But for Amazon.com, such price pressure doesn't really matter. The company has built up a commercial infrastructure that enables it to sell and deliver all sorts of cheap objects, from books to toys. Blogger Barry Ritholtz noted in January that the most of the top-selling CDs at Amazon.com sell for less than $10. For Amazon, which already has huge investments in warehouses, software, and its Web site, carving out some extra space for classical CDs doesn't require a huge incremental investment. What's more, since its inception, the store has been designed to run on very low margins.

In the case of Starbucks, the economics of selling CDs are even more compelling. With its 14,000-odd outlets, the company already has a massive, highly profitable retail channel that generates immense foot traffic daily. Each store is conveniently outfitted with counters, which are ideal for stocking a variety of noncoffee products that have mass appeal: chocolates, books, and CDs. Both Barnes & Noble and Borders may be having a difficult time making money selling wide selections of books in huge retail spaces. But when Starbucks decides to stock a single book, say Mitch Albom's For One More Day or Ishmael Beah's A Long Way Gone, it can easily turn a profit on every sale. Starbucks found the same sort of success with the Ray Charles album Genius Loves Company in 2004. Starbucks has also invested in building its Hear Music concept, where customers can buy coffee, buy CDs, or download music, into a small chain.

Is the CD dying as a commercial product? Sure. But it's got a lot of dying left to do. And in the meantime, there's still money to be made selling discs loaded with the music of Josh Groban, Alban Berg, and Rod Stewart.

Daniel Gross (www.danielgross.net) writes Slate's "Moneybox" column. You can e-mail him at moneybox@slate.com.

Article URL: http://www.slate.com/id/2162771/

I wish the CD would die.

We've had the technology to record in 24/96 for a long time, and a lot of bands have been.

Already dead. Pals at Amoeba tell me they now buy CDs by the pound.

I don't have a single picture on any of my walls.

We'll get back to that.

I work with people who sit at their computers all day, listening to their iPods. Personally, I'd find that distracting. Most of what I listen to demands full attention. But maybe, if music has become passive noise, having it on the iPod is useful.

Like hanging pictures on the wall. Something has to be there to fill the empty space. But nothing too controversial or arresting.

What I'm saying is this: Occasionally, a CD will contain what I'd consider to be rich content. Often, they contain passive noise. Background music. Mood music. People will buy that stuff if they've got nothing better to do with their money.

But they won't go out of their way to have it. Because there's no passion there. From what I see in the market these days, there's angst. And there's likeable collections. And maybe something to dance to. And a lot of pretension. Will any of that material rock anybody's world?

No.

We need more cultural phenomenon. And less fluff. We need more surprises, and less certainties.

In brief, we need to be woken up.

CD's aren't dead. What's on them, however, might as well be.

CD's are not dead. Hell, vinyl isn't even dead for some genres of music !!

Thaspian - I agree with you to a point but I can't see a CD audio only upgrade to new CD players allowing higher bit rate/sampling freq. playback (such as SACD which has been a total flop). DVD-A should be the thing to rectify this (24/192) but it hasn't exactly taken off, partially due to stupidness by the manaufacturers releasing competing formats, leading to a vhs vs betamax style debate and customers don't want to be the guy who ends up with the new betamax, so they stick with what they've got.

Besides, I agree with legendary sound engineer, mixer David Pensado. He contends that the format of 16/44.1 is not necessarily inferior, mathematically speaking it might be, but it just requires a bit more work to get it sounding good under those parameters and that 9 out of 10 people who put down formats are people who don't know how to work those formats properly.

Hell, the average moron can't even tell the difference between an mp3 encoded at 128 Kbps over an uncompressed wav/aiff, so apart from maybe a wee bit extra resolution on classical or music that is heavily acoustic, going up to 24/96 doesn't do all that much except waste filespace.

"Hell, the average moron can't even tell the difference between an mp3 encoded at 128 Kbps over an uncompressed wav/aiff"

Especially if that moron is a judge deciding whether or not an MP3 file at 128kbps or the actual CD file.

The CD is not going to die... at least not in the next 5-10 years. Why?

1) Too many people have already invested too much money in them.

2) New technology isn't that great a leap from CD's.

3) People WILL LOSE MP3 files. Many people with computers don't fully understand the concept of backing up.

4) Once the market gets CD's priced reasonably, they can compete more fully with other media.

5) The independent music scene will fill the music gap left by the majors cookie-cutter approach to releasing music. While the independents might lead the way in using new technologies for listening to their music, I bet they don't abandon the CD anytime soon.

5) While many people can't tell the difference in sound quality, music lovers generally can. And music lovers spend more on music. Those who love music prefer to rip their own music for their iPods, not buying or downloading it online. Proof is the fact that most iPods are made up of files obtained without purchasing. Sure, some of it was downloaded for free with Peer-to-peer networking. But I bet that the majority of iPod music is ripped from owned CD's.