- The Washington Times - Thursday, December 11, 2003

Prices of compact discs are striking a chord with holiday shoppers this season as rates for some new releases have dropped to boost sales and help rebuild the struggling music industry. But music sales still could hit a sour note as competition from legal downloading services continues to heat up.

“When you go through stores, it is easy to tell the least amount of traffic that is in the music aisles,” said Robert Straus, senior analyst of consumer and retail at the Independent Research Group in New York.

Instead, savvy music downloaders are tuning into the slew of legal music services, buying songs for as little as 99 cents and burning their own custom-made CDs or transferring the music to portable players. Apple’s ITunes Music Store, a leader in music downloads, has had more than 20 million downloads since Thanksgiving for 99 cents a song.

Downloaded music will account for $63 million — or 0.6 percent — of the $10.7 billion music industry this year, according to Forrester Research. By 2008, the research firm estimates, 33 percent — or $4.6 billion — of music sales will come from downloads.

As downloading picks up, overall CD sales are expected to drop. CD sales probably will fall about 20 percent by 2008 from last year’s sales of $11.6 billion, Forrester said.

Album sales are down about 5 percent for the year with 568 million sold compared with 597 million a year ago, according to Nielsen SoundScan, which tracks music sales.

However, heading into the critical holiday season, album sales were up 11 out of the last 13 weeks. Last week, album sales climbed slightly to more than 18.8 million compared with nearly 18.6 million during the same week in 2002.

“People seem to be really interested in music this season,” said Brian Lucas, a spokesman for Best Buy. “There seems to be a lot of excitement about new releases.”

That could have something to do with the deep discounts.

Universal Music Group — one of the biggest music companies with artists like Jay-Z, Sheryl Crow, Eminem and B.B. King — dropped its prices in October, and many of the big chains like Best Buy, Wal-Mart and Circuit City did likewise, offering new releases at debut prices as low as $9.99.

“At the retail level, the new releases will have attractive prices because it is the content being hyped for the day and drives traffic,” Mr. Straus said.

Shoppers will have to hunt for the deals, though. For example, “American Idol” winner Ruben Studdard’s newly released CD, “Soulful,” retails from $9.84 at Wal-Mart to $15.99 on Tower Records’ Web site.

“[Consumers] want to feel like they are getting the best value,” Mr. Lucas said.

“Soulful” is priced at $13.99 at Best Buy stores and $9.99 on its Web site.

At many of the stores, the sale prices last just several weeks after the album’s debut. After being on shelves for more than three weeks, Britney Spears’ new CD, “In the Zone,” now ranges from $12.99 on www.bestbuy.com and www.circuitcity.com to $14.99 at FYE.

Still, CD prices overall have dropped by 2 percent from last year. The average CD price from January to October was $13.42 compared with $13.68 for the same period last year, according to the NPD Group, a market research firm.

Last year, the five largest music companies, including Universal, agreed to pay a multimillion-dollar settlement for fixing CDs at a minimum price in the late 1990s, overcharging consumers.

Music watchers say the discounted prices might not be enough to recoup the sales lost to music downloads.

Illegal file sharing and the crackdown by the Recording Industry Association of America to put a stop to it — such as a lawsuit against file-sharing service Kazaa and numerous lawsuits against individual file sharers — has resulted in a slew of sites that offer legal downloading services.

Apple’s ITunes, which has 400,000 songs, debuted in April for Mac users and was expanded for Windows users in October. In time for the holidays, the company started selling gift certificates and an allowance account program in which money can be put into a user’s account every month.

“We’re seeing an enormous interest in our gift certificates and our allowance [program],” said Chris Bell, senior product line marketing manager for ITunes.

Apple’s IPod, a portable digital music player for ITunes music, is also a top wish-list item, further proving the interest in the downloading service.

“Demand is brisk,” Mr. Bell said.

Many retailers aren’t taking the chance of relying on the less expensive CDs to boost sales. Instead, companies such as Best Buy, Wal-Mart and Amazon.com have started their own downloading services or have partnered with existing digital music services to get in on the action.

“They know they’re missing some business out there,” Mr. Straus said. “It’s an alternative revenue service in a business they are already in.”

Best Buy, for example, offers a gift package with Rhapsody, a digital music subscription service with 30,000 albums and 400,000 tracks. The $24.99 package includes a three-month subscription, 10 songs to burn and a blank CD, Mr. Lucas said.

Best Buy shoppers also may buy gift cards for MusicNow, a 99-cent-per-song service with about 25,000 albums.

“There are a lot of people who love to buy a CD still,” Mr. Lucas said. “We’re giving music to people however they want it.”

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