Retailers Facing Harsh Music

Caught between free music download sites and the record labels' vigorous legal battles against piracy are the traditional brick-and-mortar music stores looking to survive in a changing, often hostile commercial landscape. In the midst of it all, the National Association of Recording Merchandisers (NARM) is recommending that retailers buckle up for a rough ride.

Digital distribution, particularly file-streaming technology, will seriously disrupt the music business, according to a report released this week by Marlton, N.J.-based NARM and composed by Internet consulting firm Emerald Solutions Inc. in Portland, Ore.

"It separates the content from the container. The question is, how will that make life different for people who make their living moving the physical goods?" asked Michael Norkus, president of Emerald Solutions' strategy group.

Online music sales have the potential to benefit all segments of the industry if firms can leverage their traditional strengths and create compelling consumer value propositions, said Norkus. Because of technological and financial hurdles in setting up an online music store, businesses with experience, money and brick-and-mortar brand names are better prepared to succeed in online music retailing, he adds.

But even as retailers move toward virtual reality, physical reality isn't going anywhere. Consumers will still want to order CDs and go to real stores, said Jim Donio, executive vice president of NARM.

"I think that right now, for the foreseeable future, people are confident that physical CDs in a package in a store will be the mainstay for the future," Donio added. "That doesn't mean that this (digital) distribution method won't be growing . . . but the research says it's going to be a small part of the business."

Still, the recording industry is trying to counteract what a report from Cambridge, Mass.-based Forrester Research Inc. calls an irreversible trend toward the unauthorized use of digital music files on sites like Napster.com.

Efforts by the music industry to develop content control systems, such as the Secure Digital Music Initiative forum in San Diego, are being closely watched by the security community to determine their strength in the marketplace.

Chidi writes for the IDG News Service in Boston.

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