There's Still Money in Plastics: Big Sellers From Taylor Swift & Tool Have Labels Rethinking CD Strategies

ISSUE 21 2019 - DO NOT REUSE THIS EVER

Streaming may be the industry's present and future — but the CD sector of the music business continues to bring in real revenue.

Sales of cds are already down by 21% this year, according to Nielsen Music, but retailers say that some labels are beginning to change their attitude toward the format as they realize there is still money to be made from physical products.

In its first two weeks of release, Taylor Swift's Lover sold almost 468,000 copies on CD, according to Nielsen. Even more surprising was the success of Tool's Fear Inoculum, released Aug. 30 with elaborate packaging for a hefty $44.98 ($31.50 wholesale price). Fans snapped up 87,000 physical copies its first week in stores, and some retailers quickly realized there was enough demand to raise prices to $59, and then $65.

Moreover, websites for stores like Walmart, Target, FYE, Barnes & Noble, Newbury Comics and Bull Moose suggest that the entirety of the more than 100,000 copies that RCA/Sony Music Entertainment shipped had sold out by Sept. 10. Meanwhile, re-sales of the album in the Amazon marketplace are fetching anywhere from $155 to $204.99 a copy.

"We were overwhelmed by how fierce the fan reaction was," says RCA co-president John Fleckenstein, adding that the label is building and shipping another round of CDs for the album, which was initially planned as a limited edition. It was also great for retailers: "It was not only a large selling item, it was also a large revenue piece, too," says Newbury Comics senior buyer Larry Mansdorf, who adds the 27-store chain has been mostly out of stock of the album since Sept. 6.

Post Malone, an artist best known for streaming success, released a CD version of his new album, Hollywood’s Bleeding, on Sept. 6 that sold 126,000 copies in its first week, according to Nielsen Music. That’s big news to brick and mortar retailers and wholesalers because hip-hop rap artists often put out physical product weeks or even months after the digital debut, if their albums come out in physical at all. They hope that other artists and their managers in the genre are watching.

"Last summer, we felt we were beating our heads against the wall trying to get labels to put out more physical," says Alliance Entertainment senior vp purchasing Laura Provenzano. And labels responded with more vinyl and elaborate CD packages. "Instead of a race to the bottom to see how many CDs we can sell at $7.99, now we can see how we can get $20 an album from consumers," says Mansdorf.

Fleckenstein says that rabid fanbases and the collector's market are key components for physical's future. "There is still an evolving notion of what you can do with physical and how it plays into new release marketing plans," he says. And the independent sector is still reliant on the physical marketplace, where some indie labels are still realizing up to 50% of revenue from vinyl and CDs, says A2IM CEO Richard Burgess.

Things just keep getting better in the world of viny, too. According to Nielsen Music, vinyl album sales are already at 10.7 million so far this year, up 7.4%. Within that, merchants point to the Raconteurs’ Help Us Strangers, which saw first week sales of nearly 85,000 units split between 50,000 CD copies, 25,000 vinyl, and 10,000 copies of digital downloads, which works out to 58.8% CD, 29.4% vinyl and 11.8% downloads. The vinyl total placed it at No. 1 in vinyl sales that week; and so far makes it the highest selling vinyl album in its debut week. Meanwhile, Billie Eilish’s When We Fall Asleep, Where Do We Go, is the best selling vinyl album with copies totaling 76,000 units so far.

But the major labels aren’t wrong to cut back on physical, say industry executives. "There is the reality that physical is smaller than ever so they have to pay an appropriate amount of attention to where the revenue is coming from," acknowledges one senior executive with a long history in physical product. "They had to make some very difficult decisions because the volume wasn’t what it once was. Without a doubt that has meant changes that have had an impact on the physical business that isn’t positive, with less people devoted to the format and less efficiencies."

But managing costs are important to the long-term viability of physical product, he says, adding without cost containment the labels likely would be getting pressure from corporate to exit the product.

Likewise, retailers are still cutting shelf space allotted to music: Last year Walmart cut 8 feet of CD shelving and added 4 feet of vinyl, a net loss of 4 feet. But some big-box retailers now acknowledge that they may have left revenue on the table years ago in their haste to abandon the VHS format in favor of DVDs, and they don't want to repeat that mistake with music.

And while Best Buy stopped selling new CD releases last summer, "There is a misperception that Best Buy has pulled completely out of music," says one industry executive, adding that the electronics chain still carries music on vinyl and budget CDs. "They seem very committed to keeping the music business that they still have."

The recent success of Swift and Tool show there can be "a massive boon in what people are interested in buying while also conveying lessons to be learned about using more elaborate packaging to cater to the hardcore fan," says Newbury’s Mandorf. With increased care on packaging and more vinyl, "instead of a race to the bottom to see how many CDs we can sell at $7.99, now we can... get $20 an album from consumers."

Retailers are still praying for a new release from Adele, who delayed making her last album available on streaming services to show how much demand there still is for physical music. "Adele could still sell a million CDs in her debut week," says Provenzano. "Of that I have no doubt."

A version of this article originally appeared in the Sept. 14 issue of Billboard.


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