Thursday, December 29, 2016
Ten Years After - A Tower Records Story
A short while ago I was reminded that this winter marked the tenth anniversary of the start of Tower Record's liquidation. This period culminated in the closure of its four-and-a-half decades of profitable operation. During the liquidation I authored a few articles about the chains downfall, and was interviewed several times over the course of the crash as well, but I have not directly written about the period since. In light of this funerary anniversary, I suspect that it's as good a time as any to reflect.
For most of us who worked in the field, and specifically at Tower at the time, the signs were there much earlier. Even in the major markets, where the much higher volume of sales could lead one into a delusion that the situation was not as dire as it was. Still, it was like a cat creeping up on a mouse for quite some time. For years leading up to '06, slowly but surely, corporate policy was being changed from the top down within Tower, and reflected the head office's desire to create a uniformity in presentation and selection in-store that were stemming from a desire to satisfy bond holders and not what we as professionals knew was best for sales. It just didn't feel right.
Other chains had contracted somewhat, and I guess that everyone was hopeful that Tower could do the same. Trim the fat, sell off some real estate, and first and foremost ditch the money-draining outposts, thus keeping the chain in existence. But, contrarily, this decrease in size would make the chain less attractive to a prospective new owner, and the head office was convinced that selling the chain to a new owner was the best solution. However, the debt that the chain was experiencing was, no pun intended, towering, and, in retrospect, there were forces who could benefit from liquidation. One must remember that this period coincided with the start of an overall economic downturn, and the US government was already bailing out home mortgage banks. They would eventually bail out many institutions, including some of the auto manufacturers, but rest assured, they had no intention of bailing out Tower Records.
But it wasn't going to be only Tower employees who got the sack. If one knew anything about the industry it was clear that this implosion would cause numerous distributors and labels to go under, and if they stayed afloat they would lay off the lions share of their marketing and sales staff. The artists would clearly not benefit from this either. All in all, it would be disastrous.
Someone had to stop this insanity, after all, the sales numbers in NYC were only down five percent, but that was a surmountable gambit to tackle with some out-of-the-box strategy and a shift in tactics. Needless to say, when I spoke with a few of the higher ups at some of the biggest distributors, they told me that they were "highly committed" to the digitization of the industry. They explicitly mapped out their vision of the future for me. They were going to cut out all of the middle men, the manufacturers, the retailers, and replace traditional sales with on-line services, so that they could maximize their net on a much smaller price point. The industry gross would die, but they would make a killing without hardly spending a penny to promote their product. Paradise for them, a nightmare for purists.
They told me this, but at the time I couldn't hear it, it just didn't make any sense. In 2005, music retail grossed 12.5 Billion USD. Digital sales were minuscule, and only accounted for about 6% of those sales. Another 8% of sales were on-line, but they were people buying CD's. How could the industry flip so quickly? Downloads had been around a few years already, and they didn't seem like a revolution. Napster had come and gone. There was no shortage of piracy lawsuits. What the hell were they talking about? Sure sales were down, but, as I said, this could remedied. Or could it?
The truth was that the perception was out there that the future was a lock, and the distributors reasoned quite correctly that any reduction in price would allow them to drive customers to shift format. It had been done before, when vinyl was replaced by the CD. Hell, they even got Democrat stooge Chuck Schumer to make public indictments regarding "the unconscionably exorbitant prices of CDs". Who cared about the fact that the money had to be split between the artist, the label, the distributor, and the retailer, not to mention manufacturing, shipping, and sales and marketing costs. In the end they were right, the public didn't care either, and bought the story hook, line and sinker.
For me, 2006 was a horrible year. My mother had been in the hospital for the entirety of the year, culminating in her death shortly before the liquidation commenced. My wife and I had received our second child at the end of '05, a blessing for sure, but the four of us were unable to upgrade to a larger living space from the small studio apartment we had on the Upper West Side of New York City. I had a second part-time job aside from Tower, and at night I was working on my second novel, which along with the first one are both still unpublished, thank you very much.
I had tried to open my own independent record store and club in the early nineties, but at the time shops and clubs were proliferating in NYC like rabbits with too much food. There were so many outlets that it was not an uneasy task to find a Tower employee in New York who had also worked for J & R Music World, Sam Goody, Disc-O-Rama, Virgin Records, HMV, Barnes & Noble, or any of the independent shops that dotted the city. I can only assume this was the same case in other major cities as well. By the mid-nineties it seemed an uphill battle, and by 1999 music industry sales had hit an all-time high in gross revenue, over 15 billion.
When Tower Records began to sink I revived the idea, and I spoke to Russ Solomon, with whom I had an amicable familiarity. I asked him if there was any way to re-organize, or separate, one or two of the stores from the liquidation process. Needless to say, this was a far too last minute ploy to be effective, but in light of the end of the business, companies that were once interested in purchasing Tower were now meeting with me and my partners. I remember with warm fondness when the late great George, from the Broadway department, came up to me with tears in his eyes, grabbed my arm, and repeatedly said, "I know you're trying." It was tough all around, if one was invested, that is.
Anyway, after the store closed its door in finality, I knew that I had to give it shot. We quickly incorporated, got a website up, conceived of a new, sleeker business model, cranked out a series of business and marketing plans, and found a space we could rent. Labels were behind us, and issued letters of endorsement, and we pitched the plan to several venture capitalists. We had no fewer than 10 advisors, an architect, and the pick of the litter for prospective employees. As for myself, I had given the project 12 months to the day to either get the doors open, or I was to move on.
But, the industry was running scarred. The press had joined with the distributor bigwigs and it looked more like rats on a sinking ship than anything else. When I showed people the numbers, they said I must have been mistaken, even though just a month or two earlier downloads only accounted for 1 billion out the 12 billion in the sales the industry was still accruing. In fact, in the year after Tower Lincoln Center closed, Barnes & Noble's flagship store right across the street grossed 95 million. The two remain Virgin locations did likewise. But, if you told anyone of the level of cash being made they would tell you that you were wrong. It was a dead or dying industry. It was like buying a horse after the car had gone into mass production.
To this day people say to me, "Wow, that would have been a great store, you would have done really well". Sure, but for it to be open now and still thriving, we would have needed to have gotten it opened at that crucial juncture, monetized all the product beforehand, and allowed our product lines to diversify. As it was, our model was a six-ring circus, with so much going on, in a much smaller space, that it would have seemed like a non-stop party. Like how Tower was at the beginning, but with a lean, direct spirit. One by one the Nile Rogers of the world, very nicely, balked at the idea until, by November it was down to us and Russ. The goal was now to convince Russ to support the change in the model. I had come to realize that the new entity couldn't simply be a sequel to Tower if it wanted to survive, it needed to be a "next step".
At the time Russ wasn't quite ready for retirement, but the scale of what we proposed was more than he wanted to be involved with. So, in the end he opted to open one small store in his hometown of Sacramento, California. I thought it was a bad move, and that it might not survive, and I told him so. But this is what he wanted to do, and he bowed out, literally just days before my 12 month moratorium was to expire. We, my family that is, had already transplanted to Michigan, and I was traveling back and forth until the day came that I had promised to throw in the towel.
After just two years Russ's R5 Records closed its doors as well, and he and I spoke again. By this time the industry had actually changed, drastically, and the reality was now much closer to the imaginary state people believed it was in just 36 months earlier. Russ admitted that the model that I had proposed to him was the right move, at least for New York, but now it was too late - a feeling that I shared with him. I thanked him for his endorsement of my theoretical correctness and stated in my usual smart-assed facetiousness that "that and $3.55 will get me a latte at Starbucks".
Around the same time I had shifted my own artistic direction from writing novels to screenwriting, of which my current company is a multi-award winner on the global script competition and film festival circuit. In the course of developing several series with my partner I found myself learning to do computer animation, doing graphic design, and most appropriate to this tale, creating music for score. So, for me, that was my evolution of how I could incorporate my love of music into my daily life and employment.
I like to imagine that Millennial's will look back with some retroactive fondness of the scale at which Tower, and the rest of the music retail business, propelled artists careers in the days before the powers that be allowed the music industry to die. Today gross sales do not exceed 7 Billion in the US, about 60% of what it was when Tower closed its doors. In fact, digital downloads still only make up less than half of all sales, not that anyone will believe that data. But, music will always be here, and somehow musicians will still make recordings and play live, so maybe only time will tell how it will evolve and morph in the future.
No Music = No Life