enue stream, which appears to be the music business in the physical world, cessful. He stresses that the music sumer to use the Internet before we Who's Minding business model currently in favor with Nathanson suggests. Napster and industry needs to pay closer attention have models ready to capture dollars. the majors. "If you are going to morph other computer programs, he says, to what the consumer wants, citing We need to protect the physical CD as into a subscription service, then you are "are price deflation, so the labels have U2 giving Best Buy a two -week exclu- much as we can until the revenue The Store? heading toward tracks, and the eco- to lower prices across the board" in sive promotion (Billboard, Nov. 24) as models are clear." nomics is he says. Continued from page 1 of that hairy," "Right the physical world. In order to drive the kind of "dumb things" the indus- Another issue causing music retail- now, you are selling an album for $12, volume in a world where consumers try keeps doing. ers to worry is the push behind a num- disruption in pricing that the Internet and you have to sell a lot of tracks to can now get music online for free, Bob Higgins, chairman /CEO of ber of such new formats as DVD- Audio, is going to cause in the near term," make that up." How many subscrip- labels should be lowering price to Trans World Entertainment, says that Super Audio CD, and Dataplay instead Nathanson said at the symposium. tions that will require, as well as the drive volume, yet instead, "they keep the industry should focus on things of simply focusing on one. Also, they "There is a transition period that we're actual pricing tolerance, are a few of the raising prices and choking volume." currently hurting the business. He wonder why the labels are in two all in the middle of-it's probably the issues he feels must be carefully states that CDs and, particularly, cas- camps so far regarding their online third inning of a nine -inning game." He thought through before the industry settes -which are reaching the end of models: This will cause confusion if it added that he expects the industry to embraces a new distribution channel their life span -should have lower remains unresolved, because con- decline more before it rebounds: "It's that ushers in a new economic mode. prices, which would increase volume sumers will have to go to more than going to be tougher than it is right now." In a talk with Billboard, Nathanson for the industry. one place to fulfill their music needs. In the same panel, Harold Vogel - agrees: "The music industry executives But a financial executive at one of "I sometimes wonder if the industry who heads up his own firm, Vogel Cap- are hoping to shut off the world they the labels says that he doesn't believe can't draw key players together like ital Management- predicted that prof- live in now and move to the electronic such a move would drive volume, with the CD and the DVD, when we all it, for the short term, will come under world, where sales volume will take off. which would mean that the labels worked together to launch the new pressure. "Technology is changing so They are hoping for another transition would just be giving up some of their formats," observes Joe Pagano, senior rapidly that the problem for the whole like when the CD was introduced and profits. He asserts, 'We are not chang- VP of home entertainment media for music industry is that you must sus- it was too easy to make money. But this ing the status quo." Best Buy. "But now, all the labels have tain your traditional distribution and transition is so complicated and full of Another problem at store level is their own models. It almost defies logic production methodologies while at the pitfalls that they don't realize the enor- the death of the singles configuration, in a business that is so mature and is same time develop and incur the costs mity of what they have to do." which resulted from label fears that so in need of being revitalized." of the new technologies." At the symposium, Nathanson ar- singles cannibalize album sales and Moreover, merchants fear that they But Richard Parsons, co -COO of gued that he doesn't see online music the costliness of marketing singles. will be excluded from the majors' AOL Time Warner, clearly believes oth- sales -or even new physical -goods In addition, merchants lament that But since a subscription model most planned Internet services, Pressplay erwise. At the symposium, he predict- technology like DVD-Audio -igniting while there are things that the industry likely means a return of the single, and MusicNet. Not only should they ed that within five years, 25% of music a CD -like replacement cycle. "It's not should be doing to shore up business, merchants ask why the labels don't have been included, merchants argue, sales will originate online, and he fur- going to be this gigantic swish of peo- executives in the upper reaches of the resume selling them in record stores but the labels also should have con- ther predicted that the Internet will ex- ple coming in and throwing back CDs hierarchies at major labels do not ap- now. By no longer putting out singles, sulted them about how those models pand the marketplace for music. and buying the next great thing," he pear to want to have a dialogue with Gaines says, the industry is ignoring should be set up, considering all the ex- Other music industry executives said. "I tend to think that whatever hap- them anymore. "It's hard to figure out one of the main issues of the business perience that retailers have in dealing think that the shift to a new model pens in the future in terms of demand how the labels are approaching the today. "The industry continues not to directly with the consumer. could pose problems for the music in- is not replacement -cycle demand -it's marketplace and what their priorities put out singles, and the kids are stay- One music industry executive dustry. "We are in the middle of a tran- normal demand plus a bit of a kicker." are, because a lot of what happens there ing away from the stores in droves." agrees, saying that merchants should sition from one form of distribution to Meanwhile, Nathanson says the is masked by their distribution people," But one senior distribution execu- have been included from the start in another," one major -label executive labels should give as much support as Handleman chairman Steve Strome tive wonders if the industry should be launching those models as one more says, "and normally what happens is possible to the distribution channel that says. "There needs to be a better under- looking for a way to safeguard the cur- way to ensure that revenue remains you have a slight dip as you wait for the brings the industry 85% of its revenue: standing so that there can be an align- rent business model, in case the tran- strong in the physical world, while other distribution channel to ramp up. the brick -and -mortar stores. "That ment of goals and objectives that would sition to the Internet takes longer than the wait continues for the new dis- But our problem is the other channel, seems like common sense to me." benefit the entire industry, and that the labels expect. "If we start to do tribution channel to generate dollars. the Internet, is gaining steam, but we Since the industry already agrees doesn't exist now." things that push people away from the He contends that, if merchants par- are getting no revenue from it, while that music sales online will not only Similarly, Wherehouse Entertain- CD, it will be permanent damage, not ticipate in the new revenue stream, the older distribution channel -the reintroduce the concept of buying ment president Larry Gaines says he temporary," he says. "But we keep it keeps them financially strong stores -is already beginning to dip." singles tracks but will also result in would love to sit down with the deci- doing more promotions that push enough to maintain sales of music in That executive questions the wisdom lower revenue per transaction, it sion- makers to discuss what would business away from the CD as a phys- their physical stores, which is in the of rushing to a subscription -based rev- might be time to rethink the entire make the overall business more suc- ical carrier, and it pushes the con- labels' best interests.

potential buyers of our manufactur- warning level of 331 pence ($4.70). we're pretty current, and we've man- EMI ing operations," Nicoli reveals. How- Yet Michael Nathanson, European aged to absorb the dip in the record- ever, rumors of a sell -off of EMI's dis- media analyst for Sanford C. Bernstein ed music side and maintain market Continued from page 1 tribution business are premature. "In & Co. in New York City, cautions that share in the process." distribution, we don't expect to exit bigger-picture problems-declining Among the eye- catching deals ($285 million) and stable operating in the near future," he says. "Indeed, sales, piracy, and a slowing global econ- pulled off by Bandier's team is a $1 mil- profit at £51.2 million ($73 million) - we are committed to making our omy- remain. "There's some real lion synchronization deal for John up 5.1 %, excluding new media. How- existing distribution operations more structural issues here for the industry," Lennon's "Imagine" in Germany -a ever, the group's recorded music sec- efficient as a first step." he says. "It's great to cut costs, but if record -breaker for EMI Music Pub- tor suffered an 8.9% sales decline, Levy, for his part, is reviewing the top line is still weakening, how lishing in that territory-and a share generating an operating loss of £8.1 the entire recorded music busi- much are they saving ?" in publishing for the new Michael million ($11.6 million), compared ness, including predecessor Ken While the mood of EMI Recorded Jackson set, Invincible. Bandier ex- with an operating profit of £59.9 mil- Berry's proposal that the compa- Music staffers may be jittery, at the plains the latter deal is on co-writes lion ($85.5 million) in the six months ny's headquarters should relocate Music Publishing division, chair - with such producers as Rodney Jer- to Sept. 30 last year. The company's to New York City. One Berry plan man/CEO Marty Bandier is continu- kins, who is signed to EMI. best -performing album in the first six that Levy did go along with was a ing to build the company's market Levy predicts that the marketplace months was Janet Jackson's All for culling of staff, with 57 people axed share. Asked how he intends to com- will improve in November and De- You, which achieved global sales of Nov. 16 in the U.S. A further sig- that this does not necessarily mean bat a downturn in mechanical royal- cember. "My feeling is that September 4.7 million units. nificant head -count reduction in closing down any offices and sharing ties given the sales decline in rec- and October were really bad because "We have an option to change that Europe is "under consideration." premises. "You can have operations in orded music, Bandier replies, "By there were very few new releases, so [£85 million] number depending on "The U.S. job cuts were started by two separate bases but still put a lot of growing market share. the emphasis for the industry is based where Main gets to in his review of Ken and endorsed by us," Levy says, the resources in- house." "That's what we've done in three on the year- end." the business," Nicoli says. "[The fig- adding that the folding of Priority Meanwhile, Levy has abolished the major territories -in the U.S., the Nicoli adds, "Alain's arrival and ure] is unlikely to go down, in the Records into Capitol took that con- special- projects division headed by for- U.K., and Germany," Bandier contin- Marty's continuing excellent per- sense that when we announced it, we cept a stage further. "Priority will be mer Virgin vice chairwoman Nancy ues. "The recorded music side repre- formance have given the [stock] mar- had some fairly clear ideas of what we the Capitol urban label. We have a Berry. Levy said that operation had cre- sents about 54% of our revenue, but ket a bit of confidence, which, look- would want to invest it in. And the great team that really knows the mar- ated a "two -class" network for artists, our performance [revenue] is up ing to the future, will put us in much reason that we reserve the right to be ket there, so I'm very hopeful that and he added that scrapping it had been quite a lot, synchronization is up better shape. We'll certainly go into flexible is that it is possible that we they will give us hits." welcomed by most Virgin insiders. quite a lot, as is other income from the new fiscal year in much better will want to go further." Speculation is rife that Virgin and Investors welcomed further de- things like background library and shape than we entered this fiscal year One of the restructuring plans that EMI will be combined in most territo- tails of the restructuring, adding stage performances. in recorded music." is definitely under way is a divestiture ries. But Levy says he wants to main- 4.3% to the company's share price "By and large," he adds, "we're of EMI's manufacturing operations. tain "two separate labels but with one Nov. 19 and another 5.4% Nov. 20- keyed on a quarterly basis on mech- Additional reporting by Matthew "We are in advanced discussions with shared strategy." And he tells Billboard bringing it back to a pre -profit anicals in the U.S. and the U.K., so Benz in New York City.

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