NARM Report Reveals Opportunities to Bolster Sales of Physical Music Products in an Increasingly Digital World

Press release
Source: Rogers and Cowan

As the music industry continues to confront shifts in the way consumers acquire music and competition from other forms of entertainment, a new study conducted for the National Association of Recording Merchandisers (NARM) by The NPD Group reveals that there are opportunities in the near-term to increase sales among an active group of consumers who still purchase physical music products. In addition, the report counsels the industry to exploit digital music technologies to spur greater overall music sales in the future.

"The digital revolution is an unquestionable reality, and there's more competition than ever for the music shopper," said NARM President Jim Donio, "but consumers report they still enjoy and value physical music products, which accounted for 94 percent of total music sales in 2005."

"Consumers are clearly making the most of all the choices they have to discover and purchase music, and physical product is still a very large part of the equation," said Russ Crupnick, vice president and senior industry analyst for The NPD Group. "For example, among teens, sales of CDs are up five percent in 2005, illustrating a halo effect from digital music, interaction with video games and other venues for new music discovery."

Even with gains among teens, the data indicates that the music industry is losing older consumers at an alarming rate. "Older adults have the interest and the disposable income, so the industry can't afford to take them for granted," Crupnick said. "To spur greater sales among this audience, it's important to make them aware of available music that might interest them, so they shop for music more often."

Although consumers are buying and sharing digital music at increasing rates, the report shows they rate physical music product as a good entertainment value. Heavy buyers spent nearly $250 on average last year on CDs. These core music consumers, who represent 41 percent of music revenue from CD purchases, remain passionate about collecting physical music from their favorite artists, whether on CD, or on CD/DVD and DualDisc formats that also offer video content. They're also learning about music from sources other than traditional radio, including video games, TV shows and movies.

A majority (54 percent) said they felt music was an excellent or very good value, which compares favorably to their views of the value of DVDs (58 percent). A growing number of music buyers of all ages now patronize mass merchants and stores where they can also buy DVDs, consumer goods, health and beauty aids, and other products. This trend represents another challenge for traditional music retailers, since it increases competition for shoppers' attention and wallet share.

"It's obvious that there is a core group of current consumers who are still predisposed to buying CDs in retail stores, so record labels and retailers should capitalize on this group now by creating demand and curiosity for music before consumers ever leave their homes," added Donio. "When consumers hit the store, they want great selection and merchandise that is well organized and easy to search. They're also looking for discount bins where they can find new music or old material to round out their collections. In addition, while today's digital experience may be about home and friends, there may be some areas where stores might be able to cultivate digital opportunities."

About The NPD Group, Inc.
Since 1967 The NPD Group has provided reliable and comprehensive consumer and retail information for a wide range of industries. Today, more than 1,400 manufacturers and retailers rely on NPD to help them better understand their customers, product categories, distribution channels and competition in order to help guide their businesses. Information from The NPD Group is available for the following industry sectors: automotive, beauty, consumer technology, entertainment, fashion, food and beverage, foodservice, home, software, sports, technology distribution channel, toys and wireless. For more information, visit www.npd.com.

About NARM
Established in 1958, the National Association of Recording Merchandisers (NARM) is a not-for-profit trade association that serves the music retailing community in the areas of networking, advocacy, information, education and promotion. The Association's membership includes music and other entertainment retailers, wholesalers, distributors, record labels, multimedia suppliers, and suppliers of related products and services, as well as individual professionals and educators in the music business field. Retail members operate 7,000 storefronts that account for almost 85 percent of the music sold in the U.S. music market. For more information, visit www.narm.com.