For the Australian record industry, 1990 will be remembered as the year that vinyl just about passed away.
Ironically, its replacement, the CD, could cause the most serious erosion of capital and investment the industry has ever faced unless swift changes are made to existing copyright legislation.
Vinyl is almost inconsequential in Australian retailers’ and consumers’ eyes. In 1990, vinyl sales plunged 47% to $A34.6 million, representing a mere 6 million units. But CDs hiked a massive 45% to $A183.78 million (almost 14 million units). Says Michael Smellie, head of the Polygram group: “In reality, vinyl died in 1990 as an important consumer item.”
The “death knell” is brought home by most majors reporting to VARIETY that vinyl sales now account for only 4 to 5% of business, compared to 10% to 25% of business 18 months ago. EMI closed its manufacturing plant last October, and Sony Music Australia’s plant will be wound down shortly, per m.d./CEO Denis Handlin.
The 7-inch single, even as an item for radio stations, has been replaced by the cassette and CD single, and majors say that it’s generally only the topline offerings that will now eye a release on all three formats; even then vinyl stocks may not be replaced once sold out.
“It was inevitable,” notes Phil Mortlock, m.d. at Warner’s East West Records, “but it has surprised people in Australia by how quickly it happened.”
The exception is for breaking new local acts, given the wider margins local vinyl manufacturing offers, and at Festival Records, Rupert Murdoch’s label-based diskery, m.d. Bill Eeg says the company will continue releasing on all formats “in most cases while it’s viable.”
Eeg, like many other record company executives, believes CD’s ascendancy is retail driven. Noting that CD hardware penetration is still only 20% to 22%, he says: “It’s up to the consumer to see if vinyl is viable, but its demise is being hastened by some retailers’ attitudes.”
Adds EMI g.m. Brian Harris: “The vinyl problem is at retail level. They don’t want to carry it except for display purposes.” He says vinyl accounts for 80% to 90% of returns for EMI.
Eeg however differs on vinyl passing away. Pointing to the emergence of all-vinyl shops in the U.S., he notes: “At present vinyl is diminishing faster than it should, and I believe a correction will take place.”
Cassettes also hurt
CD is also eating into cassette sales, which have dominated the market for the last few years. Cassettes dropped almost 2% in 1990 to $A145.3 million, checked by a massive 169% increase in cassingle sales.
Overall industry wholesale revenue rose 7% to $A363.7 million, representing 39.25 million units (up 2.8%). With sales tax and dealer margin (average of 30%) the record industry at retail level was worth around $A561 million, up around $A30 million.
For the majors that doesn’t represent any real growth, and hardly accounts for inflationary rises.
With Australia in a recession, retail business down around 20%, and record dealer indebtedness averaging between $A21 to $A35 million each month alone between EMI and Sony’s joint distribution venture (repping around 36% of the market), “These times sort out how good a company is,” notes Handlin, who believes growth stems from creating new opportunities rather than traditional market expansion.
Industry however is galvanized by the prospect of CD rentals draining that already static base via lost revenues and royalties. Since last year, around 100 outlets (mostly video stores) have become involved but industry fears it will explode as it did in Japan, where record sales collapsed by up to 40%.
The Australian Record Industry Assn. has argued to the Attorney General that copyright legislation needs to be amended so that the owner of a sound recording has exclusive rights to distribution, including rental, lending, and letting for hire. The Attorney General is currently considering the association’s submission, and 80 others, and will prepare a report over coming months.
All majors predicts dire consequences (VARIETY, April 1). “We have to move quickly before it becomes a major activity,” says the association’s exec director, Emmanuel Candi.
Meanwhile, there’ll be much jostling between the majors this year to increase market share. The association’s official market shares for 1990 put Warner Music Australia as the leader at 19.14%, followed by Polygram at 18.32%, Sony at 16.49%, EMI 14.37%, BMG 9.74%, and all others at 21.93; industry estimates put Festival at 14%.
Cause and effect
Polygram is aiming to get a 20% market share this year as its volume increases, aided by the acquisition of the A& M and Island labels early last year, per Smellie. BMG’s pickup of the Geffen and MCA labels meanwhile makes it “conceivable” the diskery will reach 13-15%, notes m.d. Stuart Rubin.
Also affecting 1991 business dynamics are various structural changes, including:
* The replacement of WEA Intl. with East West Records (Australia) in line with similar moves internationally in the Warner group to give further focus to local releases.
* Sony’s expansion of its Melbourne office to enhance its presence among some of Australia’s biggest accounts and increase local roster opportunities.
* Creation of a special projects division at BMG to boost a so far “underdeveloped” back catalog and create new opportunities, as well a formal a& r department to boost its local roster, and a non-English speaking product divison to target and market European releases (initial step is a joint venture label with multicultural pubcaster SBS).
* Establishment of a joint venture between EMI and Chrysalis to build its local roster incorporating the international commitment of Chrysalis.
* Moves by EMI and SMA to set up their own CD plants in Sydney within 12 months, the former a $A7 million operation currently in the “throes of negotiation,” per Harris; the latter a $A15 million dollar plant with 5 to 10 million unit capacity for Sony, which, according to Handlin, “wants to be in a situation where we can fulfill demand and control our own destiny.”
Latter development will almost certainly see further joint venturing between the majors in distribution and manufacturing. “If you look into the future it’s going to have to happen that way,” says Harris. “It’ll save a fortune.”
Bright light amidst the industry’s shadows is the increasing success of local acts at home and abroad. Last year’s export earnings are estimated at $A80 million, compared to $A10 million five years ago. Successful bands are increasingly underpinning the majors’ fortunes. At SMA, home of Midnight Oil among others, and the most aggressive promoter of its stable, local earnings now account for 32% of overall revenue compared to 4% in 1984, per Handlin.
Exploitation’s high tag
It’s taking increasing investment to achieve, however. Industry estimates put a minimum $A300,000 price tag on developing a local act for international exploitation. East West continues to have the largest roster (30 acts) of any major, but Michael Gudinski’s booming indie Mushroom Records (released via Festival) remains the leader at 40 acts.