Music Lovers, Prepare to Say Goodbye to the CD

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Music Lovers, Prepare to Say Goodbye to the CDYou had to know that the CD wasn't going to last forever.

We've seen 78s, vinyl, 8-track tape, and (for the most part) cassettes come and go. Why should the pre-recorded music CD be any different?

Side-Line Music Magazine
turned heads last week when it reported that the major record labels plan to abandon the CD by the end of next year -- if not sooner.

The online music magazine didn't get a single music company to go on the record with its bold claim, though it later updated its story to point out that several label employees did approach the magazine to confirm that plans do exist to nix the compact disc.

If the article is accurate, we'll be down to simply limited-edition CD releases restricted to the top-selling artists after 2012.

Farewell, Physical Distribution

We should have seen this coming. The first "a-ha moment" came during the first half of 2008, when industry sales tracker NPD Group reported that Apple (AAPL) overtook Walmart (WMT) to be the country's largest retailer of music. For those scoring at home, Apple doesn't sell CDs. It's all about digital distribution through iTunes Music Store.

We had already seen the demise of the traditional record stores before that. Tower Records filed for Chapter 11 bankruptcy protection in 2004 -- and again in 2006. Sam Goody parent Musicland also buckled under pressure.

Let's play a game. Think of the largest mall in your town. It surely had a dedicated record store or two several years ago. Is there still one there now?

The fadeout of traditional record stores didn't have to be fatal. Walmart, Best Buy (BBY), and Target (TGT) stepped up as leading retailers of music CDs. However, don't be surprised if you find that your local Walmart or Best Buy keeps hacking away at the shelf space devoted to compact discs.

Light media is being challenged on all fronts. Borders liquidated earlier this year, as bibliophiles who once swore that they would never abandon leafy reads finally come to terms with the ever cheaper e-readers. This is shaping up to be the third year in a row for declining video game sales, as console downloads and casual gaming smartphone apps eat into the once-brisk sale of gaming software on cartridges and discs. Hollywood is bellyaching about sluggish DVD sales, just as streaming video is booming as a primetime obsession.

Everywhere you turn, physical distribution is passing the baton to digital sprinters.

But I Love My Record Collection

Change isn't easy, but it's evolutionarily inevitable. The same people that bucked the migration from vinyl to compact disc -- arguing that album liner notes and the warm tone of a needle on grooves of wax could never be replaced -- are now going to resist filing change of address forms for digital digs.

I remember the resistance well. I was fortunate enough to have my band -- Paris By Air, don't fret if you blinked and missed us -- signed to a major label in the late 1980s. Our first single was released on vinyl and cassette in the summer of 1989. By the time Columbia Records issued our second and final single with the label nine months later, CDs were the media of choice.

The next time you hire a DJ for a music outing, don't be surprised if his gear consists solely of an MP3 player and a mixing console. It's the new way.

It doesn't matter if you have never even owned an iPod.

Amazon.com, Apple, and Google (GOOG) have rolled out cloud-based music storage services this year. Wireless phones and tablets are making music portable for those that don't see the point of dedicated MP3 players. Digital music stores are beefing up the quality of their tracks.

If you don't feel it now, wait until you see how few 2013 model cars will come with CD players. As music streaming gets easier and more seamless, the percentage of music fans that don't have access to digital music will continue to shrink.
You may not like it now, but you will probably understand later.

From Foe to Friend

Record labels dreaded digital distribution at first, largely because it consisted of rampant piracy on peer-to-peer networks. They didn't like Apple drawing a line in the sand at the 99-cent price point for singles and $9.99 for complete albums, a move that turned album buyers into cherry-picking consumers of individual tracks.

However, the industry has come around. It didn't really have much of a choice.

Digital delivery makes sense on the surface. Labels can save money on manufacturing discs, shipping them out, and bracing for the eventual retail returns. However, it also threatens the very viability of major labels.

I needed Columbia Records 22 years ago to promote my music to radio stations and get my records in stores. That talented kid of yours probably doesn't in a world of YouTube, Facebook, and a handful of sites that can get garage bands on to all the major digital distributors in a matter of days for just a few bucks.

See, not all change is bad. Embracing the inevitable is the first step.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, but his band Paris By Air was signed to Columbia Records from 1987 to 1991. The Motley Fool owns shares of Apple, Best Buy, Google, and Walmart Stores. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, Walmart Stores, and Google. Motley Fool newsletter services have also recommended creating a diagonal call position in Walmart Stores, writing covered calls in Best Buy, and creating a bull call spread position in Apple.




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