CD Sales Are Not Dying, But They Are Heading Towards Niche Status Like Vinyl: Analysis.

March 14, 2019 CD Sales Are Not Dying, But They Are Heading Towards Niche Status Like Vinyl: Analysis.

“The mid-year installment of the RIAA’s outlook on how the U.S. music industry is performing created quite a stir when it counted sales of compact discs in the first half of 2018 at 18.6 million, worth $245.9 million. That number, compared to the first six months of 2017, translates to a 46.9 percent drop on a unit basis and a 41.5 percent drop on a dollar basis, from 35 million units and $420 million.

Some publications, including Rolling Stone and a story in Billboard, noted that the CD decline was much larger than the decline in digital download albums, which, according to the RIAA, dropped 26.4 percent both on a unit basis (35.8 million last year to 26.3 million this year) and dollar amount ($360.4 million last year to $265.2 million this year).

The key word missing from the first sentence of this story, though, is shipments. The RIAA counts shipments, not sales — and that’s where the observation that the CD is declining faster than downloads falls short of being entirely accurate.

A look at actual sales from Nielsen Music tells a different story. Nielsen’s mid-year numbers show that for the week ending June 29, 2018, CD sales totaled 34.8 million, or nearly twice as many as what the RIAA says. Further, that number is down 19.7 percent year over year — not the 47.4 percent in shipments, as tracked by the RIAA — as sales in the previous year’s six month period totaled 43.4 million. Meanwhile, download albums are counted at 28.6 million, down from 36.3 million, a slightly larger 21.4 percent drop than the CD, with track sales down even further, according to Nielsen Music.

It’s clear the CD is definitely on its way to being a niche business like vinyl, which was tracked at 8.1 million units by the RIAA. But the CD market, despite its declines, is still four times larger than vinyl in the U.S. at this point.

What’s Goin’ On?

While the RIAA’s numbers don’t tell the whole story of the CD, that doesn’t mean its numbers are not an indication of what’s going on. The reason why the RIAA’s numbers are so different than Nielsen’s is because the RIAA subtracts returns from shipments — and earlier this year, plenty of returned CD apparently found their way back to the major labels after the holiday season.

Returns are not the only reason the CD dropped precipitously in the RIAA numbers, however — other factors may be at play in both the drop in shipments and in actual store sales. While some merchants fear that the labels may not be supporting the format the way brick-and-mortar merchants would want, others point out that the problem lies more with how some artists are supporting the CD — or not.

First off, artists in the most popular genre in the U.S., R&B/hip-hop, apparently no longer care about CDs and thus no longer care about brick-and-mortar merchants. At least 25 R&B/hip-hop albums that debuted in the top 10 of the Billboard 200 this year didn’t have a physical CD released in stores on debut week. That includes six No. 1 albums: Eminem’s Kamikaze, Cardi B’s Invasion of Privacy, Kanye West’s Ye, Migos’ Culture II, Travis Scott’s Astroworld and The Weeknd’s My Dear Melancholy. Even worse, from indie store’s point of view, at least half of those 25 hit albums still have no CDs months after being released.

“If we had CDs on those albums, the [format’s] sales numbers would tell a different story,” Newbury Comics head of purchasing Carl Mello tells Billboard. “When 90 percent of the most popular music [hip-hop] in America doesn’t show up on CD, of course sales will be down. Duh.”

The practice of delivering music to digital channels first began initially as a way to curtail piracy and create surprise event marketing on big new releases. But now, it has evolved to the point where the CD is an afterthought — or worse, no thoughts are given to putting the music out in the physical format, even though label executives say they still try to talk hip-hop artists and their managers into the merits of having their music available in the physical format.

Looking at sales by genre category, R&B/hip-hop, as expected, suffered the biggest declines in the CD format, falling from 6.33 million units in the first half of 2017 to 3.84 million units in the first six months of this year, or down a whopping 38.4 percent, according to Nielsen Music.

Meanwhile, rock, the next biggest genre overall — and the biggest in the CD format — saw a much smaller sales decline of 8.7 percent in the first half of this year, from 13.5 million copies at the mid-year point in 2017 to 12.56 million copies in 2018. The other big genres likewise suffered modest declines compared to R&B/hip-hop, with pop falling 7 percent to 3.5 million from 3.8 million copies in the prior year; while country fell 10.7 percent to 4.9 million, from 6.1 million units.

Which brings up the next problem for the CD format. In the first half of this year, Best Buy was still carrying CDs. But beginning in July, the retailer started pulling CDs from its stores, leaving in place only budget CDs and vinyl. When the year-end numbers are released, that will further erode the CD’s position in the marketplace.

The CD still has a spot at Walmart, Trans World, Barnes & Noble and Amazon, and a shrinking presence at Target, which can still move tonnage on big hits that come out day-and-date with digital — remember, Adele’s 25 sold 1.7 million CDs in the opening week ended Nov. 25, 2015, and Target sold more than half of that. Now, three years later, that albums sales stands at 9.46 million, of which 6.4 million are in the CD format and 204,000 are vinyl.

And of course, there are still about 1,800 independent retailers carrying CDs and enthusiastically supporting the format, just as they made vinyl a niche — and growing — market. So while CD sales are declining, rock remains the strongest in the physical formats. That’s good news for indie stores specializing in rock, because the vinyl format — where, again, rock is the strongest genre — is still growing each year.

Genre-Specific Blues

But even with those 1,800 indie stores still left in the U.S., R&B/hip-hop-specific stores are almost completely nonexistent. One of the remaining stalwarts that focuses on black music is DBS Sounds, a 1,200-square-foot store which specializes in carrying blues, gospel, jazz and hip-hop; and still remains a force in Riverdale, Ga. by putting on block parties and in-store event and listening parties to celebrate new releases — when they come out in physical formats, that is.

With the way things have been going for hip-hop music in the physical format, DBS owner D. “Tobago” Benito says the younger demos of 15-20 years of age don’t come into the store looking for new music so much anymore. But he says the older 35-plus demos still come to buy when artists like Jay-Z, West, Beyoncé and Nas put out music. “Customers come in asking for their music and they come in asking for it a lot,” he says. Unfortunately, those artists are among those seemingly not caring about physical releases, so he has to send customers home unhappy without the music — leaving him unhappy without that revenue.

Among newer artists, Cardi B is an example of those who ignore the physical format completely. Between her album and two mixtapes, “Cardi B could have sold a million CDs, easily,” guesses Tobago, who is just as annoyed when artists don’t release a CD on an album’s street date, even if they eventually issue one two months later. “By then the music is stale and there is no momentum behind the album, so the sales are not going to have the same impact if it came out on release date.”

Issuing an album late produces some sales, but nothing like what would happen with day-and-date releases with digital, retailers and wholesalers say. For example, after not having a CD available for its Aug. 30 street date, Eminem sold 35,000 CDs in the following two weeks. Likewise, Drake has sold 47,000 CDs of Scorpion after going the first two weeks after its digital release date of June 29 without a physical presence in brick-and-mortar stores.

Blame Game

Some merchants blame the labels for what’s happening with the CD, saying that they are cutting personnel that deal with physical formats. But label executives say that’s not true, and that they are reacting to what’s happening in the marketplace, not causing it.

This isn’t the majors’ first time dealing with declining formats, so they know a little about this kind of transition. In fact, major label executives will say that they want to keep the physical marketplace as healthy as possible. But like all businessmen, they have to protect their interests, too. So as the CD declines, they have had to re-arrange how they deploy personnel — which in some instances means re-training executives to do other things, but more often than not means layoffs.

Only a few weeks ago, Sony Music Entertainment cut about 100-150 retail stores off from buying directly from the label. That means those stores — if they want to continue carrying Sony-distributed music, that is — will now have to buy from wholesalers, which likely means higher product costs and increased difficulty for those stores’ owners to maintain profitable operations. But it reduces Sony’s cost in supporting the CD, which means it improves Sony’s profit margin, thus giving the company less incentive to consider stopping making CDs. It also is makes music wholesalers stronger.

“Physical has changed dramatically and it will require our company to change to keep the CD vibrant,” says one major-label executive dealing with the decline of the CD. “The key takeaway is we are doing this to help the physical marketplace.”

But when stores get dropped from buying direct, the increased costs puts wholesale prices at the $12-and-above, and with mark-up, the higher prices also hurt sales, merchants say.

Date-And-Switch

Another thing that is still hurting brick-and-mortar is the change from the Tuesday street date to Friday. Since digital was going up anyway, some industry observers claim it didn’t really produce such a big boost for digital, while completely hurting retail stores, which instead of having both big weekend sales and healthy sales on Tuesdays, now have a dead front-of-the-week sales day.

Record Store Day co-founder Michael Kurtz goes as far as to claim, “At the core of the collapse of CD sales is the IFPI’s claim that the global Friday street date would increase sales,” noting that IFPI chairman Frances Moore said the strategy of releasing music on the same day around the world “is an opportunity to re-awaken the excitement and anticipation of new music everywhere. We can’t re-awaken the excitement and anticipation of new music everywhere if it’s not available [on the CD format].”

The labels changed the new release day to Friday in mid-2015 because they wanted to have a universal street date to fight piracy around the globe, as pirates often found a way to get their hands on albums ahead of street dates while the CD was being manufactured. But considering that most of the music usually pirated — hip-hop — isn’t coming out physically until two weeks later or more these days, music merchants wonder why labels won’t switch the universal street date back to Tuesday, given that the production of CDs is no longer a factor in piracy.

Others ascribe a more subtle issue driving the decline of the CD format: when Apple stopped including a CD drive in its new computers, although the impact of the move is harder, if not impossible, to quantify.

Finally, retailers also wonder why more artists won’t look at what can happen when a big title is made available physically on its street date. In the debut week ending Nov. 16, 2017, for example, the CD version of Taylor Swift’s Reputation sold 507,000 copies, and has since moved a total of 1.16 million copies. Meanwhile, BTS has scanned 187,000 copies of Love Yourself: Tear; 178,000 copies of Love Yourself: Answer; and 114,000 copies of Love Yourself, for a combined total of nearly 500,000 CDs in the last 12 months, with most of that happening this year. And there are still retailers out there that are willing to take a bet that Adele’s next album, if she maintains the quality of her first three albums, will still be able to sell 1 million units in the U.S. in the first week — providing that it comes out day-and-date.”

Source: Billboard

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