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Mail-Order Music Clubs Rethink Strategies

The music industry's two biggest mail-order players are looking to spin new life into their businesses after posting a 19 percent drop in domestic audio and video product shipments last year.

Citing lack of new technologies and consumers having completed converting their music collections from albums and cassettes to CDs, Columbia House and BMG Direct are reworking their strategies to meet the marketing needs of today's customers.

“I don't think music clubs are dying, but I do think they need to adapt to the times, people's interests and people's needs,” said Lee Graham, executive vice president at BMG Direct. “Clubs have been mass-marketing beasts, and this is not necessarily the age of mass marketing. This is the age of individualized marketing, and we need to find a way to reach customers individually.”

While Graham would not disclose details of upcoming programs, he said BMG is going to “have to adapt in a variety of ways.” For instance, both houses recently introduced Web sites with the development of Total E! (www.totale.com) by Columbia House and BMG Music Service (www.bmgmusicservice.com) by BMG.

Music clubs and mail-order houses' shipments dropped much more than those by the retail sector, which saw a 2 percent dip in shipments, or a 6.5 net unit decrease, from 1.14 billion units in 1996 to 1.06 billion in 1997, according to the Recording Industry Association of America (RIAA), which tracks shipments from manufacturers to retail and nonretail outlets.

Accounting for 23 percent of the total domestic market, special market shipments fell sharply because of escalating costs of direct mail and advertising and because the majority of targeted consumers have completed converting their music collections from vinyl and cassette to CDs, according to RIAA.

“We are dealing with two things — and when there is drop of more than 20 percent in special markets, we feel the impact,” said Alexandra Walsh, an RIAA spokeswoman.

Despite shipments being down, the two mail-order powerhouses, which account for about 11 percent of music sales, tally sales into the millions, but neither would disclose specific figures.

Shipments are a lead indicator to gauge the market for recorded music and help establish the value of the marketplace. Nonretail encompasses special markets, which includes music clubs, mail-order houses and nontraditional outlets such as Starbucks Coffee and Victoria's Secret.

“You have to look at what is happening in the music industry as a whole,” said Sharon Kuroki, executive vice president of music club marketing at Columbia House, New York. “Catalog product isn't selling the way it used to. The clubs have been having problems since we started seeing softness at the end of 1994. Clubs did very well when people were replacing LPs and cassettes. The music industry as a whole has been in the doldrums, and there are a lot of big artists who have not been successful with their second albums.”

“The entire [CD] industry has felt only 2 percent growth, and what we are feeling is the aging of a medium that has now been in the marketplace for the past 16 years,” Walsh said. “Clubs are dependent on customers ordering in bulk to replace their vinyl and cassettes. Special markets are dependent on back catalogs.”

Walsh also said that because direct mail and advertising costs continue to climb, club and mail-order houses are having difficulty attracting new members.

“Special markets depend solely on direct marketing,” she said.

But marketers say other issues are at the heart of the shipment decline.

“There has been an increase in advertising costs, but the biggest reason for the decline has been lower demand,” Kuroki said. “Clubs have a hold-back of 90 days after retail release. And we tend to have a longer hold-back period on top artists — and that makes it more difficult.”

Graham agreed: “The predominance of urban-oriented music makes it difficult for music clubs. It is a very timely thing. An artist comes out and is a hit and then never returns. When we have delays of three to six months, we can't really benefit from that.”

Although both companies said that a shift in strategy is required, neither was willing to write off the industry. Instead, they are deploying more targeted marketing programs and Columbia House said it is aiming to improve services.

“We are trying to take the hassles out of club membership by offering better services through our Web site and telephone,” Kuroki said.

Although she would not specify whether the company is adjusting its frequency or rate of direct mail pieces dropped, Kuroki said Columbia House is “not mailing more, just smarter through segmentation and modeling.”

Reaching urban music fans has been a focus for some time, but the company is now looking to expand its Latin market.

“We are a long way from dying off. We are at a point in which we are getting back to a club size that is less than when we peaked in 1995 with 10 million members,” she said. “There was a time when we didn't think we could get beyond 5,000 members.”

Columbia House boasts about 8 million members.

“There are two opportunities for growth. One would be a new format, the other would be a revitalization of the music industry,” Kuroki said. “In the meantime, we have to work as efficiently as possible and merchandise the hell out of the product.”

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