The Song Remains the Blame

I hate to rain on a eulogy, but why is everyone blaming this week's demise of Tower Records on the proliferation of digital downloading?

Don't get me wrong. I'll mourn along with the best of them. I'm a music fan, and as the middle brother wedged between a pair of shopaholic sisters, I spent countless weekends killing time at the mall by thumbing through vinyl at the record stores. This week's sale of a bankrupt Tower Records to a liquidator bent on dissolving the company stings. How can it not?

The problem is that even if there were a Tower location near me, I probably wouldn't be shopping there anyway. It has nothing to do with the existence of Apple's (Nasdaq: AAPL  ) iTunes Music Store, RealNetworks' (Nasdaq: RNWK  ) Rhapsody music subscription service, or any of the remaining peer-to-peer file-sharing networks. The emergence of consumer electronics is what really dealt the traditional record shops their most savage blow. It's silly to argue otherwise.

Hot for bleacher
Last week, I knew I wanted to get my hands on the new CD from the Killers. My choices were pretty clear. I could go to Circuit City (NYSE: CC  ) and pick it up for $8.99, or I could go to Best Buy (NYSE: BBY  ) and pay $9.99 for the CD along with a bonus disc containing two additional tracks.

The superstore chains began selling dirt-cheap CDs years before Napster's Shawn Fanning disrupted the scene with digital piracy. Best Buy and Circuit City were willing to take a hit on CD gross margins for the same reason that a local grocer is willing to sell you a gallon of milk at cost: It drives traffic into the stores. If I go to the supermarket for cheap cow juice, I might as well load up on bread, eggs, and dinner from the deli.

Likewise, if I go to a consumer-electronics shop to buy a CD, I may wind up buying a video game, a computer peripheral, or a satellite-radio receiver.

The record stores were slow to adapt when they were exposed. They didn't have the computer peripherals -- or the eggs -- to help offset the suddenly overpriced Yanni and Van Halen CDs.

Someone had moved the retail record store's cheese, and the store's only response was to sell CD cleaners and band posters. The same originality and creativity that it relied on from the artists lining its racks was strangely absent from the retail reinvention process.

Killing me softly with the same old song
CD sales have fallen for most of the past few years. Ratings for the Grammys and other music-awards programs continue to plummet. Is it any wonder that you can't even find music videos on MTV anymore?

We can all point fingers. The record labels are to blame because the product hasn't been compelling enough. Terrestrial radio is to blame for spinning formulaic drivel. The consumers are to blame for burning CDs at home.

The problem is that they are all flawed arguments. How could Apple have sold more than 60 million iPods if we weren't passionate about music? How could satellite radio providers Sirius (Nasdaq: SIRI  ) and XM (Nasdaq: XMSR  ) combine for more than 12 million subscribers if the desire to hear commercial-free music didn't exist?

The truth is that we're crazy about music. We just haven't warmed up to the way that the music has been served to consumers.

Maybe it'll be an unlikely source -- like Starbucks (Nasdaq: SBUX  ) , with its Hear lounge concept -- that will save the day for the remaining music retailers sifting through the wreckage. Maybe the savior will come in the form of a company that was originally seen as a threat, like Apple -- even though it's going to have to do a lot more than give us iTunes kiosks.

There is a solution out there. How can there not be? If an entire niche is going to go Obit City, whether it's specialty toy stores, video-rental chains, or prerecorded-music retailers, it's going to be at the hand of self-inflicted wounds that it chose not to overcome by thinking innovatively.

Let the bodies hit the sales floor
Earlier this year, the nearest major record store to me, a Virgin megastore, closed its doors at The Shops at Sunset Place mall. In its place at the moment -- and I'm not making this up, believe me -- is an exhibit where actual cadavers have been transformed into works of art. Bodies -- The Exhibition is either a crowning achievement in artistry or a macabre exploitation of human remains. I don't have an opinion either way, but I do know one thing: This isn't the first time that that building has been housing the dead in the name of art.

I'll miss you, Virgin, locally. I'll miss you, Tower, worldly. Let's see which of the few remaining music retailers make the choice to finally get it right.

Best Buy and Starbucks areMotley Fool Stock Advisorrecommendations. See which stocks have made Tom and David Gardner's hit lists by checking out Stock Advisor for yourself. It's free for 30 days.

Longtime Fool contributor Rick Munarriz prefers shopping at Best Buy to Circuit City, though he remains a fan of both. He does not own shares in any of the companies mentioned in this story. He is also part of theRule Breakersnewsletter research team, where XM is among the ultimate growth stock recommendations. The Fool has a disclosure policy.


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