Last August, Brett Wickard, owner of Bull Moose, a nine-store record chain in Maine, found himself trying to figure out why his CD-R business had suddenly caught on fire.
CD-Rs -- in case you don't know (and many people still don't) -- are those blank compact discs made by the likes of TDK and Memorex that once belonged exclusively to techies or audiophiles.
"The first place I noticed it was Lewiston, which surprised me 'cause it's an old mill town," Wickard recalls. After nosing around a little, the retailer discovered what was really going on: Lewiston's local university, Bates College, had just installed a new high-speed Internet pipeline on campus. Digital copying fever had come to rural Maine.
"The minute everybody hit the Web," Wickand says, "CD-R sales went through the roof." By late 1999, Bull Moose's blank-disc business was up 1,000 percent. This year, blank CD sales have increased another 400 percent.
This is not an isolated incident. Music retailers across the country -- in particular, independent store owners and small chains that cater to download-savvy college crowds -- are reporting runaway CD-R business.
"Our sales are growing exponentially," reports Bob Lee, who runs Face The Music on the University of Oregon campus. In 25 years as music-retail veteran, Lee has never seen such astounding figures. "I can't think of anything that compares to this phenomenon," he says, citing his own 1,000 percent uptick in sales.
Boston's Newbury Comics has logged astonishing CD-R growth numbers, too. In April '98, the 21-store chain sold 151 blank CD-Rs. Last April, it moved 1,824 discs. This April that figure had climbed to 18,000. Owner Mike Dreese predicts his 2001 sales will probably be in the 60,000 discs-per-month range. Compare that to 1999, when Dreese sold approximately 39,000 blank CDs for the entire year. The 2001 annual blank CD take could be more than a million. By comparison, prerecorded CDs will likely sell just over 4 million.
These figures do not make Dreese happy.
Like most retailers he pockets about 30 cents for each CD-R sold. He'd rather be selling pre-recorded CDs, which earn him roughly $2.15 per sale. But he doesn't have much choice in the matter. "I don't even want to be in this business," he says. "We were pulled into it by our customers."
Like Dreese, scores of music merchants are growing increasingly anxious about the blank CD-R. According to David Lange, who runs the 11-store Compact Disc World chain in New Jersey, the CD-R surge arrives with a troubling new shopper mindset. "There is an attitude among young consumers that music should be free," he says. "If that goes unchecked, the long-term effects could be quite serious to the music industry."
"I think it's going to be catastrophic," adds Dreese. His company recently commissioned a focus group report that resulted in the following conclusion: "Disc Burning=Death."
And what wrought this destruction? Napster, of course, the music-swapping software that arrived on campuses last fall (the exact moment retailers saw CD-R sales skyrocket), which makes it laughably easy to find an endless supply of MP3 files -- regardless of whether or not they were authorized by artists.
Mix CD-R and Napster, and you've got a deadly formula.
Armed with blank CDs and Napster, users can now create their own MP3 albums or compilation libraries and burn them in the privacy of their own dorm. Factor in the falling prices of a computer CD burner ($200) and blank CD-Rs (less than a buck for standard data discs), and you've got an instant paradigm shift.
As one anonymous shopper who took part in a focus group convened by Newbury Comics explained: "With Napster you can pretty much get what you want." Added another: "I just finished burning the David Bowie catalog. I can get 50 packs of CD-Rs and go through them so quickly. It's really easy and it's really cheap."
Ouch.
Retailers are suffering a one-two CD-R punch: consumers are downloading free music off the Web and onto discs; others are making physical copies of pre-recorded CDs courtesy of Phillips.
It's been a busy two years since the Dutch home electronics giant tenuously introduced the first dual-deck CD-R machine in 1998. Today, roughly 3 million blank CD-Rs are now sold every month, and that figure could hit 6 million per month by December. According to the Consumer Electronics Association, 3.6 million CD-R recording components will have been sold by the end of the year, with projections calling for 10 million new machines in U.S. homes by 2004.
That sort of penetration usually brings mainstream access. Best Buy recently ran a TV commercial for CD-Rs in which a father has a prom-night heart-to-heart with his son about the "need to be prepared." Instead of doling out a pack of condoms, Dad produces a CD-R jazz disc he burned himself for Junior's big night.
At least one group benefits from the CD-R boom: the home recording industry, which has watched blank cassette tape sales decline for years. For a company like Maxell, it's a whole new ballgame. "CD-R's haven't yet surpassed sales of cassettes," says Scott Fain, a Maxell national marketing manager, "but they're going to."
But for music retailers, this just means more frustration. "We see three kids pool their money to buy one record," says Don Van Cleve, owner of the Magic Platter in Birmingham, Ala., and president of the Coalition of Independent Music Stores. "We know the other two are getting copies. And it's not just kids. It's the blues society guys, too. Any music fanatic with a circle of friends." Cleve points out that blank CDs are already the bestselling item in some of his stores. "We're feeling it big time."
It gets worse. Certain youthful CD-R users have taken to stealing empty prerecorded CD jewel cases and booklets for the records they've burned at home.
But will blank CDs really have such a dire impact on the retail business? Haven't customers been buying blank cassette tapes and making copies at home for decades? Without this, there could be no "High Fidelity."
Van Cleve concedes that the music industry has continued to thrive despite blank cassettes. But CD-Rs, he argues, are different. "People were taping albums they owned," he says. "You couldn't play vinyl in the car. Now people aren't actually buying the album. They just want the music for free."
CD-Rs have other advantages over cassettes. Not only do they offer far better quality than blank cassettes, they make the concept of long hours spent piecing together a customized mix tape obsolete. Now, thanks to Napster, "It's so easy to do," says Lee. "It's like batting an eyelash and hitting a couple buttons."
Meanwhile, some customers have taken to selling their own burned CD-Rs as used CDs. Compact Disc World's Lange won't buy them. He's also had to amend his once-liberal money-back guarantee policy. "We were seeing people with CD-Rs return 90 percent of the pre-recorded CDs they buy."
This behavior, say retailers, simply confirms the fashionable notion that music is now for the taking. "It's no longer hip to buy a CD," says Lee. "It's extremely cool to say I got it for free. I don't have opposition to blank media. I oppose sealing and duplicating without compensating artists. That's called theft."
But what about sales? Has the proliferation of CD-Rs hurt retailers' bottom line? Ironically, SoundScan reports national sales of prerecorded albums have increased a robust 9 percent so far this year.
Then what's the problem?
Bull Moose's Wickard agrees that he's "doing great." But he remains "paranoid" about the CD-R rush. "We know the freight train has left the station," he says. "We haven't felt any real effect yet, but if people are stealing today, it's going to come home to roost tomorrow. I'm concerned about 12 months from now."
Over on the campus of the University of Oregon, similar feelings can be found. "We had a great fourth quarter last year," says Lee, "but our sales this year haven't grown the way they have nationally." Are Napster and CD-Rs to blame? "Absolutely." Serving a crucial, technologically adept 12-to-36 demographic, Lee sees himself on the front lines. "We're experiencing what other retailers will be seeing nine-to-12 months from now. And in the next few years there's going to be a gutting of the music market. And not just small independent retailers. Forty to 50 percent of brick and mortar stores will no longer be here."
A just-released SoundScan study on the effects of file-sharing seems to bear him out: During an otherwise robust retail run between January 1997 and March 2000, music sales fell 4 percent at record shops located within five miles of college campuses.
It's not a pretty picture, but there may be one potential savior on the horizon.
Dreese at Newbury Comics recommends the following solution to the CD-R problem: a heavy new excise tax, perhaps $2 to $3 per blank disc. Several European countries, including France, Spain and Austria, have already levied such tariffs (with the money going to copyright holders) after their own local music industries saw prerecorded sales plummet.
But anyone who's ever watched "Crossfire" knows that such a move would face stiff opposition in the States, not to mention strong anti-tax lobbying from blank-disc manufacturers. "A tax punishes consumers more than anybody else," argues Fain at Maxwell, offering a preview of one of the company's talking points. And since the tax would have to be OK'd by Congress, few in the business think it will fly.
"It's a good idea but it's not going to happen," says Wickard. "There is no sympathy for the music business."
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