News

The market for recorded music, measured by what manufacturers ship to retail and non-retail channels, experienced a decline in unit shipments and dollar value according to a Recording Industry Association of America (RIAA) report released February 19. Concurrently, accounts from US record retailers and mass merchandisers indicated a banner 1997.

"The industry is responding to a smaller but healthier retail base," said RIAA President and CEO Hilary Rosen. "We're adapting to tighter inventory controls at retail, to a pipeline that can deliver product to stores faster than ever before, and to changes in direct and special markets."

At 1997 year-end, manufacturers saw a 6.5% net unit decrease in audio and video product shipped to domestic markets (from 1.14 billion units in 1996 to 1.06 billion units in 1997), and a corresponding 2.4% decrease in the dollar value of that product at suggested list price (from $12.5 billion in 1996 to $12.2 billion in 1997).

"Our year-end figures show us that retailers are purchasing more efficiently and selling more consistently throughout the year. They're managing their inventories effectively---the return of unsold product to manufacturers is down 5%. And sales are clearly up. The less fortunate news is that shipments to mail-order houses, non-traditional outlets, and record clubs continued to decline in the second half of 1997."

According to Billboard Magazine, a number of retail chains and individual retailers reported double-digit sales growth in the last quarter---a claim supported by Transworld, Inc., a record retail chain of 530 stores. "Over the last two years, we had to downsize our square footage as a lot of others did, and this impacted our inventory and our returns, which the labels are feeling," said Chairman and CEO Bob Higgins. "But today, from a financial point of view, we're in the best shape ever."

Supporting that affirmation of a healthy marketplace, the RIAA's report revealed the shipment of full-length CD product to retail grew 2.3% in 1997 (this number excludes special-market shipments). Even though the overall shipments of CDs dipped 3.3% as a result of the drop in special-market shipments, Rosen said, "Let's not lose sight of the fact that the music produced last year generated more CD shipments to retail outlets than ever before."

CD album unit shipments in total dropped 3.3%, from 778.9 million in '96 to 753.1 million in '97.
CD album unit shipments to retail grew 2.3%, from 527.7 million in '96 to 539.9 million in '97.
CD album dollar value in total dipped 0.2%, from $9934.7 million in '96 to $9915.1 million in '97.
CD album dollar value of shipments to retail grew 2.3%, from $8404.5 million in '96 to $8598.1 million in '97.

A favorite with consumers, CD-single shipments have increased more than 200% in just three years. Shipments grew from 43.2 million units in 1996 to 66.7 million units in 1997---a 54.4% increase. The value of these shipments jumped 48.1%, from $184.1 million in 1996 to $272.7 million in 1997. Elton John's "Candle in the Wind 1997" set an all-time RIAA record as the highest-certified single ever, boosting single sales and bringing many new and infrequent music buyers into the stores.

CD single unit shipments grew 54.4%, from 43.2 million in '96 to 66.7 million in '97.
CD single dollar value grew 48.1%, from $184.1 million in '96 to $272.7 million in '97.

Another statistic of interest to Stereophile readers is that of vinyl LP/EP sales. Although up substantially last year (31.8%!!), they showed a slight decline of 6.9% in unit sales, or a 9.5% decline in dollar value since 1996. Vinyl single sales showed a greater dip, with 25.7% lower unit sales in '97.

LP/EP unit shipments dropped 6.9%, from 2.9 million in '96 to 2.7 million in '97.
LP/EP dollar value dropped 9.5%, from $36.8 million in '96 to $33.3 million in '97.

Constituting 16.2% of all consumer recording purchases, cassettes remain a substantial part of the overall market, and manufacturers continue to produce and distribute every genre in this format. However, cassettes were adversely impacted by the direct and special markets declines, experiencing a 23.4% decline in unit shipments overall from the previous year, and a 36.4% decline in the direct and special markets sector alone. In 1997, manufacturers shipped 172.6 million units with a corresponding value of $1522.7 million.

Cassette unit shipments in total dropped 23.4%, from 225.3 million in '96 to 172.6 million in '97.
Cassette dollar value dropped 20.1%, from $1905.3 million in '96 to $1522.7 million in '97.

The demand for music videos continued in 1997, with a 10.1% increase in unit shipments (18.6 million) and a 37.2% increase in dollar value ($323.9 million). This increase was fueled by Michael Flatley's multiplatinum video, Lord of the Dance, which shipped 800,000 units, and Hanson's Hanson, which shipped 400,000.

Music Video unit shipments increased 10.1%, from 16.9 million in '96 to 18.6 million in '97.
Music Video dollar value increased 37.2%, from $236.1 million in '96 to $323.9 million in '97.

The RIAA's year-end report shows a 19% decline in shipments to direct and special markets. This category, which accounts for 23% of the total domestic market, includes all mail-order operations, record clubs, and non-traditional retail outlets.

In comparison, total shipments of all configurations to the remaining retail base---specialty retailers, mass merchandisers, and other retail outlets---dropped only 2% in unit shipments and gained 0.2% in dollar volume. This retail segment constitutes 77% of the domestic market.

According to the RIAA's Hilary Rosen, "The boom in record-club membership has slowed considerably as music buyers have converted their record collections to CD format. And while this has affected the industry overall, the record clubs depend significantly on back-catalog sales." The escalating cost of direct mail and advertising, which the clubs rely on to generate new members, has also contributed to the decline in this segment.

CD album and CD singles sales remained strong as a steady flow of top releases spanning all genres brought regular, as well as occasional and new, music buyers into stores. Certifications of Gold and Platinum albums increased 5% and 27% respectively in 1997, indicating strong sales. Diversity was the key word---several female artists reached 10 million in album sales, and multiplatinum success was enjoyed by artists in every genre, including The Wallflowers, LeAnn Rimes, Spice Girls, Notorious B.I.G., Garth Brooks, Hanson, Celine Dion, Barbra Streisand, Metallica, and Kenny G. In addition, 1997 saw the introduction of more successful new artists than ever before: 52 emerging artists released albums that achieved Gold or Platinum status.

Another new consumer this year was the online music purchaser. According to industry studies, an increasing number of consumers indicated that they made a music purchase online in 1997. Rosen said, "Accessing music through the Internet is certainly a positive advent for the industry, and all signs are pointing toward rapid and dramatic growth in the online market."

Retailers were elated about the breadth of new releases in 1997---there was something for everyone. Keith A. Benson, vice chairman and CFO of Musicland Stores Corp., the biggest record retail chain with 1363 stores nationwide, said, "Strong music product helped drive sales in the fourth quarter, giving Musicland record pretax earnings.The variety of music---led by the Titanic soundtrack---continued to pull in music consumers well into January."

The RIAA's year-end numbers, which are compiled quarterly by the accounting firm of Coopers & Lybrand, represent direct data from companies that distribute approximately 90% of the prerecorded music in the US. To calculate unit shipments and dollar values for the remainder of the market, Coopers & Lybrand uses retail sales data from SoundScan to estimate shipments by non-reporting companies. Dollar value is calculated at suggested list price.