Compact Discs Crash LP’s Party
Charles Buchanan, shopping for a compact disc player to give his daughter for Christmas, jotted notes as a Federated Group salesman in West Los Angeles bent his ear about the relative merits of this and that model.
He already had scouted two other stores and expected to hit a couple more before selecting a machine--the family’s third compact disc player.
Nearby, at recently installed racks, Charles Birkett was choosing a dozen pop and rock compact discs--or CDs, the 4.7-inch plastic and aluminum recordings that are encoded with music and “played” by laser. Birkett bought a CD player two weeks ago and already has more than 50 discs. “I’ll never buy another record,” he said. “They’re history.”
Dismissed at its birth three years ago as the expensive stuff of audiophiles’ dreams, compact disc technology has exploded, becoming the audio industry’s fastest-growing segment. Enamored of the equipment’s crystal-clear sound and recent affordable pricing, music lovers are scurrying to get on board the CD bandwagon this Christmas season. Sales of players and discs in 1985 are expected to approach $500 million and be double that next year.
CDs have given a needed boost to the audio industry, which had seen stagnant sales for two years. Lee Isgur, an entertainment industry analyst with Paine Webber in New York, said CD equipment will account for 4% to 5% of the audio industry’s 1985 sales and make the “difference between being up and being flat.” Isgur expects CDs and players to account for 10% of industry sales next year.
Ron Rotter of Seidler Amdec Securities in Los Angeles said the technology “has totally reinvigorated the consumer electronics industry, which had been very mature.”
Wilfred Schwartz, chairman and chief executive of Los Angeles-based Federated Group, said: “We’ll sell every one we have. It’s probably the strongest Christmas item we’ll have this year.”
He expects the chain’s 38 stores in California and Arizona to sell 5,000 players in December. “We would have sold 10,000 to 15,000 were they not in short supply.”
Shortages of discs are also frustrating many customers and retailers. Stores find that they can’t get shipments fast enough and that hot titles such as Dire Straits’ “Brothers in Arms” and Bruce Springsteen’s “Born in the U.S.A.” sell out quickly. CDs often account for 10% and, in some cases, as much as 20% of a store’s business.
Much of the excitement has been generated by pricing. CD players that sold in 1983 for $1,000 can be had for $300 to $500, with some unestablished brands tagged at less than $150. Many offer such features as the ability to program the order in which songs are played.
Would-be buyers holding out for better bargains on players next year might be disappointed, though. Sony and other Japanese manufacturers have indicated that prices could head higher as the dollar loses strength against the yen.
Discs that initially sold for $18 to $20 are going for as low as $10.99 or $11.99, although prices recently have started creeping back up to the $13 to $15 range.
Although it started out as a machine for classical music fans and serious audiophiles, ease of use is helping the CD player’s broad acceptance.
Standard Format
“Using the machine doesn’t require an MIT degree,” said Emiel N. Petrone, a Los Angeles-based senior vice president of Polygram Records, a major manufacturer of records and discs. “All you do is place the disc in and press a button.”
That’s a key point. In 1983, manufacturers of compact disc hardware and software formed a group to establish product standards and formats--thus avoiding the competition among technologies that has burdened the videocassette recorder industry--and to broaden customer awareness. (Satisfied that those goals have been met, the organization is disbanding Dec. 31.)
Compact disc technology, developed by Philips and Sony in 1982, works like this: Music is translated into a digital code that gets embedded onto a disc. Once the disc is inserted into a player, a laser reads the code, converting it into a continuous wave of sound.
Because nothing but light touches the disc, the listener doesn’t hear the hissing, crackling and distortion that often accompany the playing of grooves on a vinyl LP with a needle. Another advantage: Properly handled, CDs are almost indestructible and sound as good on the 1,000th hearing as on the first. In addition, the discs can store nearly 75 minutes of music, far more than a conventional album. Some early recording problems have been solved, and manufacturers are reporting very few defective discs.
Some purists still consider LP recording technology to be more exacting, but not shopper Buchanan. With CDs, he said, one “can hear the scrape of the bow and the performer breathing. I never play a record or tape anymore.”
Analyst Isgur and many retailers and recording industry executives foresee that compact discs will supplant LPs in the next five to 15 years.
Caught unaware by the demand for CD technology, machine and disc makers are feverishly expanding production capacity. Several dozen consumer electronics companies, most of them Japanese, now offer CD players.
One Plant in U.S.
“Japanese manufacturers have increased production (to satisfy) the galloping demand in this country,” said Allan Schlosser, a spokesman for the Electronic Industries Assn., a Washington-based trade group. “It’s a case of scrambling to keep up.”
The discs themselves are made in only about a dozen plants worldwide, with production concentrated in Japan and West Germany. The sole U.S. plant, operated by Sony in Terre Haute, Ind., produces about 1 million discs a month and expects to double that by the end of next year. Capitol Industries/EMI and a joint venture of North American Philips and Du Pont have plans to build U.S. plants.
Polygram, a division of the Netherlands-based Philips, was the first record company to have its own disc manufacturing facility, and the plant is still the world’s largest, according to Petrone. The plant, in Hannover, West Germany, is expected to produce 40 million discs in 1986, up from 25 million this year.
It might appear that record companies bobbled a good opportunity. Alan Perper, director of product marketing for Warner/Elektra/Atlantic, acknowledged that companies were reluctant to hop on the technology.
“When we started, we didn’t know what we had. We thought that, like quadraphonic (sound), it might be a fad,” he said. “We, as software manufacturers, were skeptical about making the long-term investment. Clearly, we probably delivered half of what we could have. We were caught very short.”
Russ Solomon, president of Tower Records, said CDs now account for close to 20% of the chain’s sales and are “encroaching on our LP space.” He said: “Tower has built the CD business by having it from the very first day (that) discs were available through the wholesaler.”
Solomon also noted that CDs with pop, rock, country and theatrical selections are outselling classical discs by a 60/40 ratio; for Tower’s LPs and cassettes, the ratio is about 85/15.
Complicated Process
Although manufacturers are cranking out titles as fast as they can, there are still only 5,000 on CD, up from 3,500 last year. That compares to 50,000 LP titles. Because the disc manufacturing process is complicated and time consuming--dust particles can ruin a disc, so much of the work must be done in “clean” rooms--many releases are out on LP or cassette weeks before the CD is available.
Louis A. Kwiker, president and chief executive of Wherehouse Entertainment, a Gardena-based chain that sells CDs, tapes and records, said that shortages at the disc manufacturing level will keep disc prices up. In fact, Capitol and Warner/Elektra/Atlantic recently announced price increases that brought them in line with most other record companies.
Industry observers say no further revolutionary changes in audio are in the offing soon. “It took 25 years for compact disc (technology) to come about,” Petrone said. “For the foreseeable future, I don’t see anything coming down the line that will even come close to the quality.”
