TOPICS > Economy

Tower Records Bankruptcy Heralds Industry Changes

August 23, 2006 at 6:40 PM EDT

ANNOUNCER: Ladies and gentlemen, rock and roll.

JEFFREY BROWN: If video killed the radio star, as the ’80s anthem alleged…

THE BUGGLES (singing): Video killed the radio star…

JEFFREY BROWN: … then it may well be the Internet that’s caused another casualty 25 years later. Sunday night, Tower Records, a once-dominant icon of music retail, filed for bankruptcy.

The California-based company was founded in 1960, the heyday of the LP, and in 1967 pioneered the idea of the record superstore. Tower prospered through the age of the cassette tape and into the days of the compact disc.

But Internet-based music sites, like Apple’s iTunes and giant retailers both online, like Amazon, and off, like Target, Wal-Mart and Best Buy, have all put a large dent in Tower’s bottom line. Sales have dropped 10 percent in the last year alone.

Now, its 89 stores in the United States are up for sale. Tower’s parent company hopes to sell the chain within 60 days.

And we look at Tower’s past and some of music’s future with Donna Halper, a media historian who teaches journalism at Emerson College. She’s had a long professional career in radio, both on-air and as a business consultant.

Donna, Tower the mega-store, I understand, actually started in a drugstore. Give us a little early Tower history.

DONNA HALPER, Media Historian: Ah, yes. It opened as a mom-and-papa store. It opened in 1960 in Sacramento. Russ Solomon was the guy that started it in the Tower Theater building, that’s how it got its name, and his father had a drugstore there.

And it went from just being a little itty-bitty place to — by 1968, it was open in San Francisco. By 1979, it was open in Tokyo. In 1983, they made the big move to New York City. And that was a big move because, back in those days, record stores were regional.

You had chains like Peaches, which was in the South. You had New England Music City which was in New England, obviously. And for Tower to jump over to New York was actually at the time quite a courageous move. And it was a very successful move.

And the timing was perfect, because 1983 was also the year that compact discs were introduced in the United States, so Tower automatically has a niche. They’re like not only here in the East Coast suddenly, but they can make a big deal about, “We get the compact discs before anyone.”

And for a while, that worked. In 1996, they had revenues of a billion dollars annual revenue. But by 1999, they’re losing $8.8 million. In 2002…

Brick-and-mortar stores suffering

JEFFREY BROWN: In their bankruptcy filing -- I was going to say, in their bankruptcy filing, they said recently, "The brick-and-mortar specialty music retail industry has suffered substantial deterioration recently." Now, that means online.


JEFFREY BROWN: ... online. That means all the competition from the Wal-Marts and the Amazons of the world, right? Tell us what happened.

DONNA HALPER: What happened, it seems to me, first of all, the price of compact discs was supposed to have gone down years ago, but it really didn't. There were a number of markets where it was really being sold at the same $15 or $16 bucks as ever.

And so the stores like the Wal-Marts that could be the, you know, loss leaders, they could get the great discounts, and suddenly Tower had competition it didn't have before. And then, of course, along came the Internet.

But there's a little more to it than the Internet. For example, next month, Clear Channel Broadcasting is about to give a preview of the brand-new Kenny Chesney country CD, OK? It's not even going to be in the stores, but you're going to have to go to the Clear Channel Web site. And suddenly you can hear this music before you even have to go anywhere.

As the Internet made it easier to order online and as giant conglomerate radio stations started previewing new music, all of a sudden record stores didn't seem as unique or as important anymore.

JEFFREY BROWN: So you think that what's happening with Tower should be seen in the larger context of the way we think about music, certainly the way we buy music?

DONNA HALPER: I go back to the old days, not like I'm old, but I go back to the old days where a new record came out, people would line up. They would line up around the block. I mean, as recently as the '80s, people were lining up at Tower, which used to have previews at midnight where they'd have a DJ in the front of the store spinning the record. And, you know, you could hear it, and you could buy it. People would line up for tickets.

These days, with so much competition for people's time, you have video games, you have online music, you have so many things that people can choose to get their entertainment that the idea of going out to a record store, even one you kind of like, isn't as special anymore.

And with so many places like department stores also selling compact discs and DVDs, the record stores that are surviving are the ones that are making themselves special. And I don't want to criticize Tower -- they're going through enough as it is -- but if you want to make it today, you have to have something about you that's going to get people into the store, or why would people go?

Need for niche markets?

JEFFREY BROWN: Well, that's what I wanted to ask you about because, as we said, Tower's owners think there will be a buyer. And what I was reading from analysts, there's differences of opinions on that.

But in terms of a more broad future for the brick-and-mortar retail record store, do you think there might be niche markets that people can fill, perhaps even a return to the old independent, mom-and-pop-type record store?

DONNA HALPER: Absolutely. Tower's not dead yet. Tower will get a buyer. And in many parts of the country -- see, we forget. A lot of us think, "Oh, everybody has got the Internet. Everyone can download music." Uh-uh. It isn't true.

While it is true that in 2005 music downloads grew by 200 percent, there are markets all over the country where people don't have access to any of that, or they're not familiar with it, or they don't know how to do it. And for them, going into a music store is a big deal.

Ethnic music is still a big deal. If you can relate to, for example, the Vietnamese, or the Chinese, or the Haitian audience, you're still going to sell product. There are still artists that people want to buy. If you can get their video, their DVD, et cetera, there are still going to be plenty of things that a music store can do. But it's going to have to make shopping for music fun again or, again, I say, why would people go?

JEFFREY BROWN: All right. We will watch. And as Gwen said, the record will continue to spin, I guess. We'll see what happens. Donna Halper, thanks very much.

DONNA HALPER: Thanks for having me on.