Are Big Box Stores “Music Tastemakers”?

Lynne Kiesling

Such is the assertion in an article in today’s Wall Street Journal (subscription required) on how big box retailing is changing music retailing.

In past decades, deejays and music critics helped shape musical trends. Today, many music industry executives agree, the big boxes have become the new tastemakers. Even as compact disc sales fall, their choices dictate which CDs are widely available on store shelves across the U.S. Big boxes are the industry’s biggest distribution channel — and the rock, hip-hop, jazz and classical music titles they choose not to carry face drastically reduced chances of reaching mass audiences.

Thanks largely to aggressive pricing and advertising, big-box chains are now responsible in the U.S. for at least 65% of music sales (including online and physical recordings), according to estimates by distribution executives, up from 20% a decade ago. Where a store that depends on CDs for the bulk of its sales needs a profit margin of around 30%, big chains get by making just 14% on music, say label executives who handle distribution. One of these executives describes the shift as “a tidal wave.” Despite the growth in online digital music sales, physical CDs still are the core of the recording industry, accounting for about 85% of music sales.

Is that really true? Are big box stores really the new tastemakers? I’m not persuaded, and actually the lede of the story hints at why I’m not convinced:

When Wal-Mart Stores Inc. informed record labels it was looking for CDs to include in a promotion of Jewish music last year, executives at Naxos of America Inc. leapt at the chance to get some of their ethnic recordings onto the shelves of the big-box retailer.

But within months of shipping thousands of CDs to Wal-Mart, the classical music distributor’s loading docks were swamped with unsold copies of “Klezmer Concertos & Encores” and “Great Songs of the Yiddish Stage.” Since they hadn’t sold quickly enough to meet the retailing giant’s standards, 80% of the CDs Naxos shipped to Wal-Mart were returned. Record stores typically return only 20%.

“In hindsight, if we’d thought about this a little more, we wouldn’t have done it,” says Naxos Chief Operating Officer Jim Selby. “Jewish classical music, going into a Wal-Mart store, it’s pretty farfetched that we’d have 60% or 70% sell through.” He adds, “It’s niche-y music.”

If the big box stores truly are music tastemakers, then why such large return shipments? It sounds to me like WalMart forecast a higher ability to create demand for Jewish music than they were able to realize. That’s not a tastemaker. What this sounds like to me is WalMart doing its usual thing of shifting risk to its suppliers, not WalMart leveraging any ability to shape the music purchases of their customers. Of course the inventory of CDs that big box stores choose to carry shapes the music purchases of their customers at that store, but even though 65% of all CDs are sold at big box stores, if customers want something particular and WalMart doesn’t have it, they’ll get it at Amazon or Best Buy or Target or Borders or some other online or physical place.

Furthermore, the WSJ article begs the question of whether there are really tastemakers in music any more. So many commentators decry the fracturing of the music market, the decline in the shared pop culture experience, because of the ability that technology creates for long tail marketing. So here’s a simultaneous proclamation of new big box tastemakers and the demise of the tastemaker. Who’s right?

And another thing: mass audiences? I personally find the music that’s pitched at mass audiences to be utterly anodyne, devoid of any redeeming feature; granted, I’m not the target demographic, but I think there are enough people of diverse enough ages, tastes, and incomes to make the concept of the mass audience fast on the tail of the dodo bird: nearly obsolete. That’s another way of saying that on both the supply side and the demand side, technology has made the music market a lot deeper and broader than in the halcyon good-old tastemakers-create-mass-pop-stars days. And thank goodness for that.

In fact, just this week Chris Anderson wrote a Long Tail post about the decline in top album sales, referring to a recent Music Week survey:

The so-called “long-tail” impact on the singles market, since the introduction of legal downloads, is starting to reach the albums business, according to new Music Week research.

MW’s detailed study of quarter one trading patterns indicates that, while sales of the Top 200 sellers plummeted year-on-year by more than 20%, the rest of the market dropped by little more than 3%. It indicates that, as the top titles suffer the biggest falls in a clearly tough market, sales are being spread out more widely across a greater number of titles.

The apparent trend is being warmly received by labels and retailers alike, coming after a challenging opening three months of 2007 when artist albums were 8.94% down on Q1 2006, despite having had the added benefit of download album sales. These were not added to OCC sales figures until quarter two last year.

The drop was led by disastrous sales of the Top 200 artist albums, whose total of 11.29m physical units in the 13-week period was 21.13% lower than the first quarter of 2006.

Further down the chart, however, it was a different story, with sales of wider catalogue remaining relatively healthy. Excluding the top 200 best sellers, 13.10m physical artist albums were sold in the first quarter of 2007, down just 3.33% on a similar total for Q1 2006.

This all leads me to conclude that the WSJ article is off base, and that even though more than half of music sales in the US occur through big box retailers, that fact does not mean that such retailers are tastemakers.