Convention '99
Chairman's Message
Following are excerpts from remarks given by 1998-99
NARM Chairman Rachelle Friedman, J&R Music World, at the Closing Session on Thursday,
March 11.
Good morning, everyone. I'm really excited about sharing my view of the state
of the industry with such a diverse group of talented people. I have a laundry list of
issues that are of major importance, the first of which is the one causing the biggest
buzz at this year's Convention. I speak, of course, of the Internet.
As we end this century, we stand at the
crossroads of a paradigm shift. Today's customers can shop and buy practically anything,
anywhere, anytime. "Going to the mall" without having to be there is turning
into a real-time choice as consumers use wireless, Web and cable technologies to purchase
products. I can be in my home, in the middle of the ocean or 30,000 feet above the ground
and buy products.
The availability, in digitized form, of any
content - music, software, movies, and books - is already becoming a major factor. Some of
us are afraid that stores could soon become dinosaurs. Others seem to think that the
Internet is magic ... that anyone and everyone could become a player in our business.
Neither of these extremes reflects reality. As
someone who has owned a store for many years, but is also selling products through my Web
site, I'd like to dispel some myths about the Internet.
1. You can
develop a substantial Internet business in our industry without a major investment in
marketing, inventory, fulfillment, and customer service.
Not true. To cite just one example, just buying
tenant space on a portal like AOL or Yahoo is very expensive.
2. Web sites eliminate the
need for paper catalogs, ads and circulars.
Our experience has been the opposite. We find our
customers still want paper. We advertise our mail order catalog in the New York Times,
Wall Street Journal, PC Magazine, and MacWorld. But, ironically, the largest source of
catalog requests is our Web site. The Web-savvy customer still wants a catalog.
3. Internet retailing will
replace mail order and retail shopping.
False. The Internet has brought us new customers and
has enhanced the shopping experience of our existing mail order and store customers.
Internet shopping, mail order shopping, and store shopping are all just varieties of the
retail experience.
If you are a J&R customer, you can choose to visit our stores in downtown
Manhattan. Shopping in a store is a unique experience that will always be the preferred
method of shopping for some of our customers. For them, there is nothing like interacting
with knowledgeable salespeople or with like-minded customers while you see and touch the
merchandise.
For other J&R customers, there is no substitute for browsing through a
printed catalog or newspaper at home or on the commute home on the train. These customers
like the human contact over the phone. Internet shopping simply extends the possibility of
retailing through time and place.
As we say in our ads, walk in, phone in, log in.
4. Internet transactions
obviate the need for customer service.
Quite the opposite. Internet customers expect a very
high level of service and they have no tolerance for anything that falls short. They
demand instant e-mails confirming their order. They expect to track the package online.
Failure to deliver results in nasty, impatient e-mails. The assumption that
the computerized transaction is a cost-saver is false.
5. The last misconception is
that if you're not there already, it is too late.
Yes, it is more difficult to establish yourself on
the Internet now. Market leaders have exclusives on some of the best Web real estate.
Various companies have merged and sought strategic alliances, but there is still plenty of
time to be an effective player on the Net. If you have a good model, execute well, stay
honest and reputable, and treat the customer with respect, the customers will come.
And let's not forget that the volume done on the Internet this past year was
tiny: only a little over $100 million. There's plenty of room for growth. And there are
plenty of things to be excited about.
For one, Internet customers want to buy music. According to Media Matrix, six
of the top 20 sites on the Web sell music.
Digital Downloads Simply
Another Configuration
We can also be excited by the prospect
of knowing more about our customers' tastes and needs than ever before. We can be excited
by a technology that allows us to be more creative and more efficient marketers. Yes,
there are challenges: cost-effective fulfillment, tax issues, finding the appropriate net
equivalent of in-store play.
The biggest of these challenges may also represent the biggest opportunity,
and that's digital downloads. By now, I'm sure you are all aware of the many technologies
that are out, or are being tested, or are in development for downloading music. The
runaway hit, of course, is MP3, whose popularity is driven by the fact that it's an open
standard that's free to the music consumer. It's biggest drawback is the fact that it
isn't a secure technology and has generated literally millions of illegal downloads.
With the rash of announcements since Christmas, including the announcement of
the Madison Project test by the five majors, and the formation of the coalition of
companies operating as SDMI, I think it's safe to assume that it won't be long before the
downloading of music will happen within protected and encrypted technologies. NARM
applauds the efforts of these companies to make digital downloads work for both the
copyright holders and the consumers.
So what will downloads mean for those of us in this room? How will digital
downloads affect our way of doing business? Well, first of all, the sale of a digital
download is a retail transaction, and therefore, I view them as simply another
configuration of music that can be stocked on my Web site. And like any other new product
on my shelves, I need to learn all I can about it to effectively merchandise and market
it.
Madison Project Data
Critical For Retailers
The Madison Project test will
undoubtedly yield useful data about consumer preferences and potential economic models
going forward. It is critical that this information be shared with the retail community so
that we can respond to changing consumer preferences in our own strategic plans.
There seems to have been an atmosphere of secrecy around the project thus
far. When people don't know the facts about a technology, or what the strategy behind it
is, human nature is inclined to fear the worst. The worst for retailers is e-commerce
without retailers. The worst for labels is e-commerce without labels.
The thousands of retail locations now in existence offer the consumer a
diverse marketplace that is able to meet a variety of tastes, lifestyles, and budgets. I
believe, as does the NARM Board of Directors, that we should strive to develop an
e-commerce marketplace which is equally diverse and vibrant.
Industry consolidation has already shrunk our ranks such that enormous market
power resides with relatively few companies on both sides of the fence. While bigness has
its place in any mature industry, it is frequently the small entrepreneurs who provide
needed innovation and creativity. Our industry, in particular, should understand this.
NARM To Serve On SDMI
Advisory Council
NARM has been invited to be on the
Advisory Council of SDMI, an invitation that we have eagerly accepted. We support the SDMI
concept of industry standards for secure music downloads as well as the goal of
interoperability under an open architecture. We offer the support of our many online
retailers as a laboratory available to SDMI for use in conjunction with the testing and
evaluation and development of criteria for all the technologies.
New Adventures With
DVD-Audio
New technologies will affect our
business in other ways this coming year. I'm sure I join many others in this room who have
been delighted by the amazing success of DVD and who are eager to embrace its new
offshoot, DVD-Audio. While I always welcome exciting new consumer products on my shelves,
we must work hard before the introduction of this latest improvement on digital sound to
sew up the few remaining loose ends.
I applaud Hilary Rosen's plea to the hardware manufacturers earlier this week
to find a way to resolve the differences between the two competing versions of DVD-Audio.
A format war is no way to introduce a new technology, as we all should know from history.
We must also think carefully about the kind of packaging that will best
position this new product. We must strive to minimize the potential confusion with other
five-inch entertainment discs. Some think it should be in a jewel box. Others think it
should be in standard DVD-size packaging. NARM is partnering with both RIAA and IRMA in a
dialog among the various facets of the industry to their preferences both for packaging
and merchandising. We hope that providing this kind of analysis and information will yield
the most informed packaging decision, one that will work for many years.
Source Tagging Initiative On
A Roll
Last, but not least, this morning is a
topic which has been a top priority for NARM in recent years: source tagging. I am
delighted to stand before you this morning and report that this important NARM initiative
is finally becoming a reality.
Last December, Dave Mount, WEA Chairman, officially announced the launch of
source tagging for CDs. Last week, Sony Music has announced that they, too, will tag CDs.
MGM and Columbia/TriStar have officially announced source tagging plans for DVDs.
Dave, thank you for getting the ball rolling! Thanks also to Danny Yarbrough,
Paul Culberg and Dave Bishop for putting their support behind this initiative.
To our other friends in the supplier community I say "The job is not
done yet." We can't take full advantage of source tagging until we hit critical mass.
And let's not forget that there are still customers who use a different technology - so
the job's not yet done for them, either. Our goal is to have a full program in place for
fourth quarter this year. You can do it!
Tin Drum Victory
I conclude my report on the state of the
industry this morning with more good news. Many of you will recall that we joined VSDA to
challenge the seizure of Tin Drum videos in Oklahoma City where the police had determined,
without so much as a hearing or trial, that the movie contained child pornography. Then
the police hit every video store in town to seize copies of the movie, including those out
on rental by demanding the store rental records. Fortunately, after a long fight, the
judge in the case ruled in our favor on every point, so we can declare victory in the Tin
Drum litigation.
It's clear we've got some great accomplishments under our belt this past
year. But there are still great challenges ahead. Our ultimate vision of this brave new
world just around the corner in the new millennium should be one in which we see
opportunity to grow and improve this business - not just carve up profits yielding winners
and losers.
Last March, when I became NARM's Chairman, I remarked that I felt something
magical about working together with people who share the excitement that the music
business is all about. I still feel that magic, the real magic in the music business, and
I think that there are thousands of people like me who work in stores, in warehouses, in
wholesale and distribution facilities all over the United States.
Our industry has benefited from this diversity in the past. It brings us the
creativity and fresh thinking on which we depend. In closing, I'd like to leave you with
the theme from this year's Convention "We're On A Roll." If we work together
into the next century, I believe we'll stay on a roll. Thank you.
