Press Releases

04.30.07  Jim Donio Addresses Attendees During Opening Session & Annual Meeting In Chicago

Good morning and welcome to the 49th Annual NARM Convention. This is actually our first Convention in Chicago since our very first Convention...in Chicago...in 1959. And we're thrilled to be back. We've worked on putting a brand new spin on this year's Convention in a number of ways, especially bringing the Chicago experience to you and bringing you out to experience Chicago.

From our native Chicagoan award honorees, Don Cornelius, and the band Chicago, to featured events like Chicago-area retailer Dedry Jones's interview with Chaka Khan, to excursions on Lake Michigan and to the Merchandise Mart, and time to enjoy the music and nightlife at Buddy Guy's Legends, this year's Convention more than others in recent memory, truly embraces the host city.

Attendance is strong and on par with 2006, topping 1,200 delegates and counting. This underscores that attending NARM is an important business event for all segments of the industry during any economic cycle.

Thanks to our Convention Committee and all the music and special event sponsors, advertisers, speakers and performers who are playing such an integral role in this year's event.

We continue to face seismic shifts in our business, affected by how fans discover and consume music, and how well we are meeting their wants and needs. Both physical and online pirates plague our industry worldwide. Efforts to combat piracy are ongoing on the national and international stages.

The 2006 losses of Musicland, Tower and Capitol among others, along with contraction at so many other companies, have been troubling realities. RIAA's recently-released year-end statistics documented the drop in physical album sales, but CDs continued to account for the overwhelming majority of overall music sold. Digital sales are a bright spot, but at this juncture are not completely offsetting the shortfall in CD sales. We all know how 2007's sales profile has begun, and where all the forecasters have already concluded we're headed.

Is it just me, or do you ever feel like some onlookers are fairly giddy about our travails?  They've concluded we're doing nothing to reverse the situation. They've written us off, and this is equally troubling. Well, since I am not here to sell more newspapers or magazines, boost readership of my blog, or play to anxious analysts, I choose to adopt a more balanced and reasonable view.

We are undergoing an unprecedented transition that has our industry concerned and uneasy, particularly since there are no quick fixes. Our mandate is to innovate now, and find the best new music and the most creative and exciting new ways to deliver it using physical, digital, mobile, or a blend of all three.

Here's the key. New ideas will be developed and executed by our own collaboration, cooperation and partnership that is open to and genuinely embraces a new paradigm. Maybe even drawing competition closer together?

There are actually some pretty exciting alternatives from suppliers on the table right now that could invigorate consumer interest in owning physical product. A number of these ideas will be part of the dialogue here over the next few days.

The promise of developing profitable digital models is also encouraging, especially exploration of how to marry the digital experience with brick and mortar retail businesses, via in-store media stations, web-based commerce or bundled offerings.

Partnerships between Trans World and Passalong, and Circuit City and Napster have made news recently. Best Buy's collaboration with Real Rhapsody will be highlighted in a panel at this Convention. Amazon appears poised to move into a new digital realm. And independent New York retailer Other Music has just unveiled a digital offering, announcing that, "we are a real record store going digital and we are open for business."

If you choose to look, you will find a healthy and vibrant community of sellers of all shapes and sizes who are working diligently with their trading partners to meet today's challenges and innovate to deliver music and other forms of entertainment to their customers.

Virgin Entertainment had a solid year. Newbury is opening new stores. Many independent retailers are thriving. Criminal Records, Music Millennium, Twist and Shout, Waterloo, just to name a few.  Silver Platters, Dimple and Rasputin's have stepped up to grow their operations with former Tower locations.
A group of Urban music retailers have just formed a new coalition. And from the never say never department, there's even some renewed energy in the vinyl and turntable business.

And Tower's legendary founder, Russ Solomon, is opening a new store, R5, in the exact location of the original Tower store in Sacramento. We will welcome him back to NARM as a new independent retail member nearly 50 years after he was the groundbreaking first retail member of NARM in 1960.

Let me take a few minutes to touch on NARM's past year. Our membership numbers are stable, with a host of new companies in our ranks. We also had our fourth consecutive year in positive financial territory.

Here are some highlights of our progress on some of the Association's key initiatives and priorities:

Coming out of our first Marketing Symposium last summer, we identified several ideas to help fuel sales of physical music. Topping the list was Jim Urie's suggestion to mount a catalog promotion, taking a page from the AFI's programs celebrating great movies.

We would focus attention on albums and the emotional attachment people have to great artists and great music, and in doing so, help sell more music. After all, albums are still relevant and important, even in the growing age of song downloads.

A retail committee came up with a ranked list of 200 albums that were embraced by music fans when they were first released ... but that could also have continued success today.

Our Marketing Council developed the promotion to work on multiple levels: to introduce younger listeners to older classics, to reacquaint older listeners with their favorites, and to help brand outstanding newer releases for both older and younger music fans alike.

We were fortunate to partner with the Rock and Roll Hall of Fame, and to secure so much industry-wide interest. Music companies supported a media and marketing campaign, and nearly 80 retail companies agreed to highlight the program in stores, on websites, in ads, and in other materials.
 
Of course, once the list was revealed on March 6, there were healthy debates, cheers and challenges. Even Howard Stern got into the act. And that's exactly the point.
 
People were suddenly talking and blogging about albums and collecting CDs. And not just our list, but others as well. The reach of the media attention even stretched as far as China and Italy.

We logged more than a million pages on Google, tracked more than 10 million potential media-driven impressions, hundreds of thousands of visitors to the promotion's web site, and lifted sales over levels prior to the effort. For more information, you can still visit www.definitive200.com.

We met yesterday to evaluate the promotion's performance and, based on the constructive feedback we received from the council, we will take what we have learned and build on it for future efforts to benefit the industry.

Let's shift our attention from marketing catalog to new releases. In its first year, NARM has been deploying its weekly New Release e-mails as a tool for the industry to draw attention to the new music hitting stores every Tuesday. Response has been very positive.

Plans to enhance the service this year with the addition of DVD and, eventually, video game product information are underway.

I cannot address the topic of new releases without touching on abiding concerns about the flow of the releases throughout the year.

At the 2006 Convention, Hastings Entertainment CEO John Marmaduke proposed that the industry was flirting with what he dubbed "seasonal suicide," with so many key releases clustered in the late 3rd and 4th quarters of the year, contributing to lost revenue opportunities that affect everyone from the artist to the label to the distributor to the retailer.  John has personally spearheaded an effort to help analyze how to profit from seasonality and provide data to better inform the industry-at-large.

Looking exclusively at the Top 400 releases per year as a baseline, consider these Nielsen SoundScan stats:

*  In 6 out of the past 7 years, the #1 album for the entire year was released no later than May.

*  High-profile artists have continued to release albums during the 4th quarter, even though average sales for a new 4th quarter release have decreased by 35 percent over the past 3 years.

*  Between 2000 and 2006, total album sales from new releases during the 4th quarter dropped from 60.2 million to 31.1 million.

Here's the big opportunity for the industry. SoundScan estimates if just 15 of the releases from the 3rd and 4th quarters were spread out during the 1st and 2nd quarters, those albums would obviously have a longer life cycle and could generate millions more in additional album sales.

Two seminal academic papers on seasonality further inform this discussion. They suggest that albums by superstars should be released during the first two quarters and at the end of November to provide for a more even distribution in each quarter.

On the other hand, artists that need time to build a following should be released in September and October. 
 
We've clearly seen some movement. Examples like Norah Jones, Martina McBride, Maroon 5, and Linkin Park, among others, are very encouraging. We need to do more and sustain it. 

I implore artist managers and label executives to give serious attention to their competitors' schedules in music, as well as DVD and video games to set launch dates that do not overlap or that minimize competition. You have the chance to benefit the health of the entire industry.

Nielsen SoundScan executives will talk much more about this data at their presentation today.

We are once again working with The NPD Group on research to illuminate consumer behavior for our members so they can make more informed business decisions and stimulate sales.

The study poised for release today seeks to show how consumers are discovering music and what influences their decision to purchase. Next up later this summer is a study of the boomer consumer that will take a more in-depth look at their lifestyles and what the industry can do to encourage more music consumption from this influential segment. It also heralds a new collaborative partner for NARM ... AARP, which is co-sponsoring the study.

NARM led the way among the entertainment retailing community last year with a statement urging the adoption of compatible DRM standards and interoperability.

NARM also joined the Coral Consortium, a collective effort of companies and organizations, including RIAA and MPAA and some of its members, with the common goal of reaching an interoperability standard. 

Recent announcements obviously cast new light on this issue and I am sure this topic will figure prominently in discussions here at NARM.

In another important decision positively affecting the delivery of digital entertainment to consumers, just last week a federal court ruled that downloading music files is not a public performance. NARM supported that position in a friend of the court brief with the Digital Media Association and the Entertainment Merchants Association. As a result, digital music providers are not required to pay additional royalties. 
 
NARM's pledge to provide its members with information about current and future digital business opportunities led to the creation of our first-ever Digital NARM.

The first-rate line-up of speakers, panels, presentations, sponsors, and networking booths are geared toward selling digital entertainment and exploiting opportunities with new technology to maximize both digital and physical business models, including the ongoing exploration of in-store kiosks and media stations.

Can you believe that NARM will turn 50 next year?
 
We've already been identifying ways we can remember the people, events and achievements of the past half-century. You'll see a video crew here this week capturing memories and moments for us to use in next year's program.

More importantly, as we approach this milestone, we've also been charting the future course for NARM, and how it can continue to best serve its members. In a strategic planning session in February, the Board examined the current landscape and looked ahead to future trends.

The Board agreed that NARM should focus its efforts and resources exclusively on the music space, but examine its programs and services to ensure the Association remains relevant as the environment evolves.

That means NARM must accurately reflect and represent the entire landscape of how the industry delivers music to consumers, now and in the future, embracing physical stores, online stores, physical product, downloads, mobile, and subscription models.

Here's our new, streamlined mission statement: NARM advances the promotion, marketing, distribution, and sale of music by providing its members with a forum for diverse meeting and networking opportunities, information, and education to support their businesses, as well as advocating for their common interests.

Accordingly, NARM's new tagline delivers a positive and proactive message: "advancing the business of music."

In closing, I want to re-emphasize that all segments of our industry can and will co-exist within the NARM community, with each playing a vital role in bringing fans the music that entertains and inspires them.

It's all about choice. Consumers want choices, not just in their music, but in the way they discover and purchase it.

The entire industry benefits when the consumer has robust choices, and as long as we are all competing fairly to attract and serve the consumer, the consumer wins.

These are times when doing what feels safe might in fact be the riskiest move of all.
 
In coming here this week, we all seek to learn from each other's experiences, and benefit from a collective wisdom which acknowledges that working together really matters. By striving for new solutions, we can all advance the business of music. The stage is set for you here in Chicago to have some candid dialogue, explore fresh approaches, hear some great music, and have some fun.
 
Here's to a stellar convention!