Fretting It : Despite Recent High Sales Note, Record Firms See Tough Times

Garth Brooks, Mariah Carey and C&C; Music Factory were among the big winners when Billboard magazine honored the record industry’s top sellers in a ceremony televised this week.

The big loser may be the industry itself, which is mired in its deepest downturn in a decade, and even a strong Christmas will not salvage it.

Billboard and other trade magazines have been filled with sobering news of layoffs and company consolidations in recent weeks. Record industry executives say the recession and weak recovery are mostly to blame for the slump, which stirs memories of the disastrous post-disco era, although others say poor marketing, increased competition and unexciting music are also playing a role.

Irving Azoff, the well-known record mogul who is struggling to establish his own label, Giant Records, predicts that the industry is in for at least another “18 months of hell.”

Layoffs and mergers have begun at New York- and Los Angeles-based companies and probably will grow. Industry sources say as many as 140 jobs are to be lost as a result of the consolidation of EMI Records USA, Chrysalis Records and SBK Records. Atlantic Records is expected to lay off 40 to 70 employees. Twenty-five people have lost their jobs because of the merger of its subsidiary, Atco/East West. Other labels have also let employees go as part of the general housecleaning that’s swept the industry.

The problems of Hollywood Records, a unit of Walt Disney Co., have become well known. An internal memo from company President Peter Paterno that predicted losses as high as $33 million next year surfaced several weeks ago, to the company’s dismay. Industry executives say several of the recently formed smaller record labels could fold after year-end.

Capitol-EMI Music Inc. Chairman Joe Smith sees the paring process as cyclical. The business expanded too quickly in the “euphoria” of better times two years ago, according to Smith, who said the creation of new labels such as Giant and Hollywood also “raised the ante.”

The industry got a small dose of good news Wednesday when it learned that business has increased nearly 50% since a sluggish November, thanks largely to the response to superstar acts such as Michael Jackson, U2, Hammer and Guns N’ Roses. Sales reached 15.7 million units, according to industry sources. But analysts say tough times will return once the Christmas spirit fades.

Because of diminished expectations, a new yardstick for success has been introduced. When Michael Jackson’s “Dangerous” was released to huge fanfare last month, industry insiders hedged their bets by saying it would do only as well as economic conditions allowed.

Some people close to the business say the economy is not the only source of the industry’s problems. They maintain that the public has also rebelled against inflated compact disc prices and music geared primarily to teen-agers. There is growing concern that the industry has ignored aging baby boomers by devoting too much of its marketing to Top 40 radio tastes.

The mainstream success of country music stars such as Garth Brooks, who reached the top of the charts with “Ropin’ the Wind,” is taken as evidence that people want something new. On the financial front, frustrated concert promoters who lost $4 million last summer recently published a list of the 10 least popular live acts in hopes of forcing down ticket prices and thereby boosting attendance.

Larry Solters, a music industry veteran who heads a company called Scoop Marketing, said salesmanship is one of the industry’s greatest voids. Solters argues that record sellers need to break away from radio and record stores and reach out more directly to the public.

“Rock ‘n’ roll has been a youth-oriented business since Elvis Presley,” Solters said. “Now that’s changing. The baby boomers have grayed.”

In conjunction with Ticketmaster, Solters’ company is test marketing a toll-free number for consumers to buy new releases. A boxed set of Barbra Streisand songs has also been offered through an 800 number by Columbia Records. The company declined to characterize the response.

Al Cafaro, recently named executive vice president of Polygram Holding Inc. in addition to running its subsidiary, A&M; Records, agreed that marketing could be more inventive.

Cafaro said something new is needed to break through the “clutter” in the market. “We’ve learned to some degree, but old habits die hard,” he said. “There’s a shared body of knowledge that comes under the heading of: ‘This is the way it has always been done.’ ”

The industry’s problems were laid out in stark detail earlier this year, when the Recording Industry Assn. of America reported that music shipments were down 11% for the first half of 1991. The continued popularity of compact discs, which carry the highest price tags, helped to keep the dollar value of shipments steady. But every other format was off.

The downturn has been especially hard on record stores. Mark Siegel, president of Burbank-based Shamrock Entertainment Group, whose holdings include 91 Music Plus stores, said the recession, music quality and costs have contributed to the industry’s problems.

But with artists signing more lucrative contracts, he doesn’t foresee a change in pricing, even though “the hue and cry from retailers has been unceasing and never louder.”

A small number of mom-and-pop stores, such as Rockaway Records in Silver Lake, circumvent the pricing problem by specializing in used compact discs. Owner Wayne Johnson said sales of used CDs outnumber new by a 5-to-1 ratio at his store.

“I would have closed the door a long time ago (if I only sold new CDs),” Johnson said. “I don’t know how people who just sell new music survive.”

Jim Donio, communications director for the 700-member National Assn. of Recording Merchandisers, said old perceptions about the industry’s durability have been dashed.

“For a long time there was a feeling that the entertainment arena would be recession-proof and that the consumer would always have discretionary dollars,” Donio said. “But people are using what money they have to make ends meet. There’s a strong case to be made that the typical music consumer . . . who used to buy multiple titles is not buying now.”

Hopes rest largely on technology. Manufacturers and retailers look to digital cassettes, due next year, to stimulate sales much as compact discs did in the 1980s. The mini disc, a smaller and more versatile version of the compact disc, also is on tap.

MCA Music Chairman Al Teller said he’s “not optimistic” about any meaningful improvement in the business next year. “We’re going to have to suffer accordingly,” he said.

Like most record executives, Teller denies that pricing is the problem. He maintained that music is still a bargain compared to movies or theater. But he agreed that consumers aren’t excited by much of what they hear.

“We have not been in a terrifically exciting time for music in recent years,” Teller said. “That’s something that the industry has to deal with.”

Record Industry Sings the Blues The record industry is suffering through its worse sales slump in a decade. Manufacturers’ shipments of albums, CDs, cassettes and music videos were down 11.08% in the first half of this year compared to the first half of 1990. Retailers are hoping for a lift from Christmas sales. Source: Recording industry Assn. of American Market Research Committee.