Tuesday, August 22, 2006

Tower files Chapter 11, seeks buyer

Tower files Chapter 11, seeks buyer

Simply no surprise. Simply an example of a top-heavy public company that hasn't managed to figure out how to turn a growing-profit in a changing market. Not necessarily a sign of impending doom for the music industry.

I don't think that a packaged music format, something that people can pick up, feel, and pay-for at a cash 'n wrap, will at some point cease to exist. I do believe that we have seen the last successful disc-based format (at least I hope so). SA-CD and DVD-A (including its cousin DualDisc) were tremendous improvements over CD, sounding better, providing high-resolution and surround music capabilities, having limited video capability (for DVD-A), containing backwards compatibility, etc., yet in a non-rush to market these properly, the music industry let them become a failed experiment. New formats Blue Ray and HD-DVD can be described with the same advantages over CD, yet unless the music and video industries can quickly come to their senses, both formats will go down in flames.

There are other ways to distribute content. I hope that the physical medium will have no moving parts. Flash memory is getting denser, more robust, and cheaper every day, but it probably has limitations that will prevent it from getting as cheap per storage-unit as current magneto-optical systems. Spinning discs were from day-one an anachronism, designed from hearts raised with the romantic notion of spinning vinyl, and even in the late-'70s not the only choice for dense data storage. The Sony/Philips hegemony of patent rights, replication facilities, and constant hardware upgrade and replacement cycles has been very effective to them but it has held-back media technology by decades. Whatever way the planet spins toward for physical content distribution, I hope that we see the light before a spinning disc or (hard drive) platter is chosen.

The People have spoken (and have been speaking for a decade) - they download and trade files of audio and video content. It's just plain natural for us to have a (currently) open communications system like the internet and share what we can. Certainly a one-to-many hobbled system like iTunes is one way to generate revenue for copyright holders (hopefully to creative artists), albeit a limited hierarchical one. The browsing process at the iTunes store can be replicated in a retail brick 'n mortar environment, possibly with technology that lets us listen to anything in the store beyond the primitive listening stations, relatively unchanged since the 1950s; browsing through a stack of CDs at Tower, we see something we like (the visual will continue to be very important) and pick it up. What if the music on this music-carrier immediately started playing in our earpiece tethered to our cellphone, and we could add this to a playlist for download, add the physical album to our shopping cart at the cash 'n wrap (perhaps to be replicated, printed, and shrink-wrapped on-the-spot!), or to a save-for-later list? This could satisfy both our urges for immediate-download-gratification and hunter-gatherer instinct directing us to take home a trophy (the shopping gene, common to men and women!).

Why isn't Tower at every live performance? Set up a small shop selling the artist's (and related artists') CDs, offering on-the-spot downloads to phones and iPods, selling instant CD-Rs of tonight's shows, sharing profits 50/50 with the artist? This works at every level of the music industry, from opening acts at local clubs to sold-out U2 arena shows.

Some say iTunes etc. is pushing us toward a singles-market instead of an album market, but in the century of music distribution, we have seen this cycle a few times - after the height of the 78 RPM album in the '30s, and again in the album-oriented '70s and '80s. These cycles should be looked-upon as a refresher for the industry, not as a coffin-nail in an industry.

Some say Tower's biggest challenge comes from Wal-Mart, Target and Circuit City. This may be so currently, but again people forget recent history. Most people, through Rock 'n Roll era, the Hi Fi boom, and the rise of the LP record and CD, bought most of their discs at Sears or J. C. Penney, at rackjobbed sections of the store. These sections carried only the hits, but they replaced what was sold, and could be depended-upon to have popular stuff at a reasonable price, close-to-home whether you lived in Manhattan KS or Manhattan, New York, NY. A specialty retailer like Tower will always sell the hits, but what differentiates them from the mass-marketers would be depth of catalog. Unfortunately since mass-marketers (including internet-based retailers) often look at music and video products as loss-leaders, drawing people to their stores to ultimately purchase more-profitable items, Tower has had to increasingly charge higher prices than mass-marketers and is looked-on as a high-priced alternative. The record labels should have recognized Tower's worth and found a way for them and other specialty retailers to prosper in the face of mass-market competition.

And don't get me started on independent record stores. The major labels had essentially booted the indies by the early '80s by refusing to sell direct to them. A linear decline in independent store success continues to this day. Successful indies, I guess Amoeba would be the poster child, could concentrate on depth, scale, and vibe, while using tools like live performances, trade in used product (at-best a wash for the music industry, trading actual sales for marketing value), etc. And Starbucks would have to qualify as a successful indie record store chain, exploiting their captive, homogeneous audience with very focused custom product.

Tower has a lot going for it if it wants to survive as an independent entertainment retailer - a known name, refined distribution mechanism (if they haven't fatally poisoned this stream by not paying their suppliers), physical locations probably still with good locations and affordable leases, etc. If they can show that they can adapt, and in-fact lead, they can choose to prosper.

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