Oldies No Longer Quite So Golden

The economics of the record industry rest on the notion that fans still like that old-time rock ‘n’ roll. But hundreds of older albums that have been propping up a weak new-music business, including Bob Seger & the Silver Bullet Band’s 8-year-old “Greatest Hits,” are starting to look shaky.

Sales of “deep-catalog” albums -- defined by the industry as products in release for more than three years -- have dropped 11% this year, declining more than twice as much as sales of new releases, according to Nielsen SoundScan data.

The shift represents a potentially devastating turn in the record industry’s two-year slump, during which reliable revenue from older hits has helped offset a plunge in sales of new titles. The roughly 177 million deep-catalog albums sold in the U.S. last year represented about 25% of the industry’s domestic sales and generated more than $2 billion, label executives estimate.

With the drop-off in sales of older titles, labels are increasingly exposed to the risks of financing new acts. What’s more, the catalog decline wreaks havoc on labels’ bottom lines: The older titles provide huge profit margins because they cost virtually nothing to promote.

Some classic standbys have suffered. Although people still buy hundreds of thousands of copies a year, sales of Bob Marley and the Wailers’ “Legend,” from Vivendi Universal’s Island Def Jam unit, have dropped by more than one-third in the last two years, for example. Metallica’s classic “Metallica,” on AOL Time Warner’s Elektra label, suffered a similarly rapid decline in the same period, selling an estimated 362,000 copies last year. Seger’s hits package, on EMI Group’s Capitol label, which is selling about 500,000 copies a year, is also off its peak in past years.

Music executives blame the slowdown in younger-skewing classics -- those purchased most often by people younger than 25 -- on digital piracy. The decline in sales of older-skewing titles suggests that the industry may be losing its ability to reach mature consumers, in part because so many traditional record stores have closed.

Survey data released this week by market research firm NPD Music showed that overall music sales were declining fastest among people age 36 and older, with nearly half of them saying there was a dearth of interesting music available from any source. Recent studies suggest the percentage of older consumers downloading music for free has remained flat, as younger people have increased online copying.

Still, many executives say, the older titles’ slide shows that the free file-sharing networks such as Kazaa and Gnutella are popular with older, mainstream music fans. A survey in December by market research firm Ipsos-Reid, for example, found that about 12% of consumers age 35 to 54 download music from the networks.

Music executives suspect those older users are copying classic material from acts of their own generations, while the younger pirates are discovering industry icons for the first time.

“Every four years, a new generation discovers Bob Marley or discovers ‘Dark Side of the Moon,’ ” said Eric Garland, chief of research firm BigChampagne, which monitors downloading traffic. “Now you’ve got a generation, or maybe a second generation, who grew up with CD-Rs [recordable discs] but not CD purchases. That, I think, would put a serious wrench in the works.”

Some of the biggest record corporations have only begun to get serious about pursuing pirates of older material. Although labels have been flooding online networks with bogus versions of new songs in an effort to frustrate would-be pirates, for instance, they hadn’t “spoofed” their catalog songs until recently.

The thinking, according to one executive, was “start with the big ones,” which at the time appeared to be new pop releases.

That may have left some classic and profitable recordings vulnerable. Data from BigChampagne show that during one recent week, the list of 20 artists whose songs were shared the most on the online networks included Marley, Frank Sinatra, Neil Diamond and the Beatles.

But the recent slide may owe less to downloading than to a consumer shift to Wal-Mart, Target and other mass merchants, which carry far fewer catalog titles than conventional record stores.

Big chains, on average, have 1,500 to 5,500 titles on their shelves, compared with 50,000 or more at a typical Tower Records, according to estimates from label officials and retailers.

Conventional retail chains Sam Goody, Wherehouse and Music Network collectively have shuttered hundreds of stores this year, saying they are unable to compete with mass merchants that heavily discount CDs to draw customers to electronics and other products.

“Why is this year different from other years? Tons of stores closed,” said artist manager Cliff Burnstein, whose firm Q-Prime represents Metallica, which has had one of the top-selling catalogs in the industry. “The Wal-Mart section for music isn’t getting any bigger. It makes me very nervous.”

Several executives also say the decline shows that the compact disc format -- which ushered in a long run of prosperity for the music industry as fans replaced their cassette collections -- finally is running out of gas.

The best hope for recapturing momentum may be new, paid Internet services such as Apple Computer’s iTunes music store. In theory, these will offer labels limitless “space” to vend their older wares.

Some lament that a sizable chunk of today’s music is so disposable that it isn’t creating a catalog at all.

“If you look at the catalog that has been driving the catalog chart for years, there’s not a lot of it that’s younger than 10 to 15 years old,” said John Esposito, president of Warner Music’s WEA division. “After a while, even those become tired. This is a vital issue for us to deal with, because it could change all the rules if we don’t get our arms around it.”