R.I.P. Tower Records

[Ksyrup]

Looks like the end...



Modern music business has ex-giant teetering



By Frank Green
SAN DIEGO UNION-TRIBUNE STAFF WRITER

August 12, 2006

The music could be about to die at Tower Records.

Four major music conglomerates have cut off compact disc shipments and frozen credit lines to the 89-store chain, possibly heralding the end of the brick-and-mortar music superstore.

Tower, which emerged from bankruptcy in 2004, has been hit hard by mass-market discounters like Wal-Mart, Internet music sales and a shift by some consumers to digital downloading. The 46-year-old company, which also licenses 144 stores overseas, has been unable to attract a buyer for its format.

EMI Group, Sony BMG Music Entertainment, Warner Music Group and Universal Music Group stopped sending CDs to Tower stores within the past two weeks after Tower missed debt payments to the companies, according to label sources.

Tower's bill to Warner distributor WEA might be $20 million alone, reported trade paper The Hollywood Reporter.

“This was inevitable,” said Phil Leigh, senior analyst at Inside Digital Media in Tampa, Fla. “Physical record stores like Tower will soon be obsolete.”

Calls placed to Tower Records' corporate offices in West Sacramento were not returned.

Warner spokeswoman Amanda Collins and EMI spokeswoman Jeanne Meyer both declined to comment on the halt of product shipments to Tower.

Sony and Universal did not return calls seeking comment.

Sources at the music publishers said Tower customers would start noticing the cutoff within the next several weeks as the retailer no longer has copies of new releases from popular bands like the Flaming Lips or My Chemical Romance.

“The company is pretty close to the end,” said Barry Sosnick, a music industry consultant at Earful.info in New York. “It has wrung out all the concessions (from music labels) it could expect to get.”

Tower, which has locations in San Diego at 8657 Villa La Jolla Drive and 3601 Sports Arena Blvd., has been known through the years for its large, supermarket style stores, knowledgeable employees and championing of new and obscure artists.

“I would hate to see Tower close. ... It has the largest selection around,” said Andrew Ragus, who was shopping this week at the store on Sports Arena Boulevard.

Ragus, who was looking for a new album by pop-folk singer Jonny Lang, said he visits the outlet at least twice a month, spending up to $30 each trip. He fondly recalled making his first Tower outing in Los Angeles in the 1960s.

Several clerks stocked the racks with new CDs, while a half-dozen customers browsed through CDs. Customers were surprised that Tower – which opened for business in 1960, the year Chubby Checker did “The Twist” – may be on its last spin.

“I download a lot of music, but there are times when I want to hold CDs in my hand,” said Keith Freimuth, a 30-year-old restaurant manager who lives in San Diego's Bankers Hill. “Tower is the only place to go to do that.”

Sales of music in the United States fell 0.5 percent last year to $12.3 billion as a shakeout continues that has hurt traditional music stores like Tower. Last year, 39 percent of music buyers made purchases at a traditional store, down from 50 percent a decade ago, according to the Recording Industry Association of America.

While Tower had a robust sales site on the Web by the mid-1990s, it has been been slammed in recent years not only by Internet competitors such as Amazon.com but also by other transformations in how music is sold.

Behemoth retailers like Wal-Mart, Target and Costco can offer best-selling CDs at lower prices. Wal-Mart, the world's largest retailer, “has the customer flow, positioning and pricing,” Sosnick said.

Sales of CDs themselves have declined by 25 percent from a peak of 942 million in 2000 – the same year Tower reached its zenith with almost 200 outlets and more than $1 billion in revenue.

Tower was late to the party on digital music downloads, a category that accounted for 6 percent of U.S. music sales last year. The chain recently launched Tower Records Digital, a music download store.

It has also expanded into computer games and personal electronic devices and has launched a massive online bookstore at its Tower.com Web site.

But “the people who have been put into place by (Tower) creditors don't understand the business. They don't understand the product category,” said industry consultant Sosnick.

Tower came out of bankruptcy two years ago with its creditors owning 85 percent of the company in exchange for trimming its debt by $80 million. Founder Russ Solomon's current title is chairman emeritus.

Last month, the company named turnaround executive Joseph D'Amico as its interim chief executive – its third CEO since 2002.

Tower said in a statement at the time that D'Amico – a senior managing director at FTI Palladium Partners in Chicago – would be given the primary task of selling the company. The chain has retained the investment bank of Houlihan Lokey Howard & Zukin to help, but no deal has resulted.

Calls placed to Houlihan Lokey in Los Angeles were not returned.

Analysts said that Tower likely is a tough sell. Its size, selection and reach have been unparalleled among physical music stores, but it may be the end of an era for the superstore. Virgin Megastores remains, but it operates on a smaller scale.

Operators of local mom-and-pop-style music stores said that while Tower's possible demise is lamentable, it does not necessarily portend a domino effect for smaller brick-and-mortar music outlets.

Eric Howarth, who has operated the independent M-Theory Music store in San Diego's South Park for nearly five years, said he opened another offbeat shop last year in Mission Hills because business is still humming.

The chain's current bestseller? “The Eraser” by Thom Yorke, lead singer of Radiohead.

“Tower tried to be something for everybody,” Howarth said. “Our customers are people who purchase niche, independent music by independent artists on independent labels. We're the kind of store that meets the needs of the community.”

[cthomer5000]

later!

[Glengoyne]

Oh No!!

Where Am I going to get my fantasy football mags this year?

[Buccaneer]

I have great memories of Tower Records. About a mile or so from the SDSU was a Tower Records. I can't tell you how many LP's and cassettes I bought there in the late 70s through early 80s (usually the classic stuff that I missed from the 70s). I even made a trip to SF one time just to go to the famous one in the Marina District.

[rexallllsc]

They're probably going to be bought by the company that owned FYE stores.

[Groundhog]

Evolve or die.

The music industry has changed dramatically over the past decade or so, and if you can't keep up, you will fade away. What you see is record companies suing napster and children for stealing their merchandise, when what they should have been doing is exactly what Apple went out and did with iTunes. They were beaten to the punch and instead of facing the inevitable and coming up with ways to profit from it, they chose to go on fighting a war they couldn't win.

It's inevitable that the big music chains will face similar problems, and they now need to look forward at alternatives if they want to survive. Tower did try, but they were too late. You need to take risks and innovate, not move 4 paces behind everybody else.

[AZSpeechCoach]

I spent many hours scouring Tower Records ASU for offbeat music for my radio show. I was crestfallen when the store closed about 5 years ago. To see the entre chain disappear will be a big loss. They had stuff that you couldn't find at a Wal-Mart or an iTunes.

[cthomer5000]

I think this will eventually be a good thing for the independently owned niche store.

[Rizon]

Oh crap, where am I going to buy those $21.99 CDs now!?!?111

[Honolulu_Blue]

Originally Posted by Rizon

Oh crap, where am I going to buy those $21.99 CDs now!?!?111

Yeah. That was the problem. I fondly recall hitting the Tower Records in Ann Arbor after exams, mid-terms, or what have you. I bought a ton of stuff there when I was an undergrad (before the store closed).

There was also a Tower Records in the building I worked at in D.C. I bought some DVDs and magazines there, but never CDs. They were just way over-priced. You could get the same thing from Amazon for much cheaper (shipping included).

[dawgfan]

Tower used to be a good chain - great selection, pretty good prices. Then the internet explosion happened, and then the digital music revolution. I haven't shopped at Tower in years as a result, and if I do go to a store to buy music, it's usually a local independent.

I spent a lot of money at Tower in my younger days building up my collection...

[AZSpeechCoach]

Originally Posted by Rizon

Oh crap, where am I going to buy those $21.99 CDs now!?!?111

Yep. That part wasn't so good. I guess that killed them. If I could find it somewhere else cheaper, I went there. I'm so ashamed. I'm such an asswhite.

[Mota]

Originally Posted by Rizon

Oh crap, where am I going to buy those $21.99 CDs now!?!?111

I know that they have to make a certain amount of margin in order to survive. But this is the main reason that I've been pushed to download some of my music.

I listen to some more obscure music, and this stuff is often $26.99 - 27.99 CDN at HMV. It really bothers me that you can find the newest sludge for $14.99, but I'm paying almost double that for my CD's. I feel as though they're specifically targetting me, saying they're not going to make any margin on the new Britney Spears, but let's make it up on the guy buying the new Dream Theater CD. That pricing alone has forced me online, I'm still buying a lot of CD's but I just can't afford to take as many risks for that kind of prices, I just buy the "tried and true" bands that I know I will enjoy.

Even just 5 years ago there was still a price delta but it was more like $14.99 - 18.99.

I just wish the record industry / music retailers would realize that they should try to make it EASY for us to buy our CD's, because it's very easy to find them online for free. That's the fight they're really fighting. That's also why iTunes is successful, they understand their battle. Most people don't want to be criminals, and the price delta between downloading a legal copy at iTunes vs. illegal is small enough that they are willing to pay for it. THAT is the right strategy.