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U.S. Record Stores Get No Satisfaction from Stones

LOS ANGELES (Reuters) - If music retailers needed another warning that their future is imperiled from slackening sales, veteran rockers the Rolling Stones have given it to them.

The British band snubbed U.S. record stores late last week by anointing mass market electronics chain Best Buy Co. Inc. as the only seller of its new DVD, "Four Flicks," for four months, and independent record store owners are seething.

From Nov. 11, through the holiday rush, traditional music retailers will be forced to watch as potential customers flock to Best Buy to snap up the 4-disc package being sold for $29.99.

As the music industry reels from plunging sales due in part to Internet piracy, they also are facing heightened competition from mass merchants like Best Buy and Target Corp. that control about 55 percent of U.S. music sales.

These giants often use their muscle to sell music as loss-leading products in hopes that customers will walk out with a newly released $9.99 CD and a $1,000 TV or refrigerator.

Increasingly, the mass market vendors are entering into exclusive deals with top bands such as U2 and the Eagles, though the exclusive sales windows for those acts lasted weeks rather than months.

Such deals are short-sighted and hurt not only traditional retailers, but the music industry as a whole, said Clark Benson, chief executive officer of Almighty Institute of Music Retail, which helps record labels work with music stores.

"The more that a mass merchant like Best Buy ends up having an exclusive, the more it hurts these pure-play record stores," Benson said. "Those stores are the ones where people are really getting turned onto new stuff, not the mass merchants."

Benson said over 1,100 chain and independent record stores have closed in 2003, making it hard for consumers to stumble upon the new music that is the industry's lifeblood and future.

Torrance, California-based Wherehouse Entertainment Inc., which had 339 stores a decade ago, will soon be down to 111 after filing for bankruptcy protection in January. The 95-store Tower Records chain of Sacramento, Calif. is flirting with bankruptcy.

Industrywide, in North America, first-half 2003 music sales fell 11.7 percent to $5.1 billion from the year-ago period.

NO SYMPATHY FOR DEVILS

Some retailers are not only angry, but are plotting revenge.

"The mistake some of these guys may be making is that a lot of retailers are like elephants that don't forget," said Mike Dreese, co-founder of Boston-based chain, Newbury Comics.

Best Buy's two-week exclusive in 2001 for a U2 concert DVD caused Newbury to retaliate by doubling the fee it charged U2's record label for marketing any of its acts. Newbury ended up with about $15,000 in extra income.

"In essence we issued a speeding ticket to them and they paid it," Dreese said.

With the Rolling Stones, Dreese expects he will mark up the band's extensive CD catalog by a few dollars. He expected to lose some customers but said, "we're basically not going to make it easy for them (the Stones) to easily profit off their brand if they're favoring a competitor in a permanent way."

A spokeswoman for the Rolling Stones said the members and their advisors were traveling and unavailable for comment.

Retailers kicked up a fuss earlier this year after the Eagles released a DVD single exclusively through Best Buy for one month, but received no sympathy from the band's manager, Irving Azoff.

Gary Arnold, Best Buy's senior vice president of entertainment similarly shrugged off concerns about its exclusive deals, and said he expected "Four Flicks" would be the company's best-selling music DVD ever.

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