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The music industry is facing its toughest business climate in recent memory, and slow sales are hurting not only the record labels, but music retailers as well. In the face of continuing sales declines, store closings, mergers and consolidations, layoffs, and seemingly intractable digital distribution issues, the industry came together last month for its annual National Association of Recording Merchandisers (NARM) convention and trade show in Orlando, FL.

NARM reports attendance of 1600 at the event, which was kicked off with president Pamela Horovitz observing, "We know how to handle a business based on a physical product sold through a retail store. It's a model based on scarcity: scarce space on the CD, scarce time on the radio, scarce marketing dollars, and scarce space on the shelf. What we have to build is a model based on ubiquity; one in which unlimited files can travel as both streams and downloads anywhere through any number of middlemen at the same time. This is a marketplace in which the customer will reign supreme, and where service will take its rightful place as a commodity worth paying for."

Horovitz likened the group of retailers to an armada of ships afloat on the open seas and then quoted French poet Andre Gide: "One doesn't discover new land without consenting to lose sight of the shore for quite a long time."

Horovitz suggested that music retailers leave "the safe port of our old business models . . . . All around us are prognosticators, and provisioners, and naysayers, competing ships, and of course, pirates," she said. "We're weathering the tough seas of customer indifference, and we worry about getting becalmed by falling revenues, or getting off-course with ill-conceived strategies."

"The truth is, we've made this voyage before as an industry," noted Horowitz, who admonished the attendees to hang in there as a new market grows. "The [legal] digital distribution of music will eventually be realized." The organization's leader noted that NARM supports strong copyright legislation and that, through education and enforcement of existing laws, "eventually, piracy will be brought under control."

There was also a presentation by outgoing RIAA chairman and CEO Hilary Rosen, who observed, "We are all at a critical juncture in our relationship with music fans and now is our opportunity to put their interests first. Not ours. I firmly believe that when the music consumer is well served, so will we all be as well." Within days of Rosen's seemingly conciliatory remarks, however, the RIAA was on the warpath again, this time taking aim at four college students.

Of interest to audiophiles were comments at the convention regarding the DVD-Audio format made during a special two-hour seminar moderated by HITS Magazine's Mark Pearson. Record labels challenged retailers to do a better job supporting DVD-Audio and admitted that better efforts to inform consumers and a wider selection of artists and titles was also key.

Double-sided hybrid DVD-Audio discs, with one side bearing Red Book CD and the other DVD-Audio, were cited by BMG, EMI, and Warner Music as possibly the key for dealing with SACD's challenge. Warner's David Dorn stated that the label would look at DVD-Audio hybrids seriously over the next six months, admitting that they've done "a terrible job [of promoting DVD-A] over the last few years, which we are correcting now." He hinted that promoting DVD-A as an audiophile format was an error.

"If these products don't get out to the stores, if they sit in the back stockrooms, if they're placed somewhere between polka and comedy, it's just not going to work," said Dorn. "We really need to work with you—the retailing community—to help bring this out and to show the consumer that there is something that's really cool, that has value, that they can play in the systems that they have . . . we can then as an industry move towards totally revitalizing our sales."

DVD-Audio statistics were also noted: over 500 titles are currently available, compared to 400 at the end of 2002; 165 retailers are stocking DVD-A at 1500 locations, which represents roughly 25% of the field. Dorn did admit that, although Warners is selling fewer CDs right now, "we obviously need to find something that will invigorate sales." While DVD-Audio could be the answer, Dorn added, "I don't know how long we can stick with [the CD format]." EMI's Ted Cohen was optimistic, saying that selling DVD-A profitably was "do-able."

Tower Records' George Scarlett addressed the DVD-A/SACD format war, "Whenever there have been these sorts of wars, if you will, one or zero have emerged." He added, "It will be a good thing for our industry if a format between these two emerges and becomes ubiquitous in the marketplace." Scarlett said that, while Tower is an outspoken supporter of SACD, the company is still trying to find the best formula for selling DVD-A discs and the best location for them in the store.