A little after 11 a.m. on a Saturday, Tower Records in Emeryville is dead. Three customers pace the aisles of the now-bankrupt chain while, two miles away, Amoeba Music in Berkeley sounds like a roaring factory. Fifty-plus customers from little kids to little old ladies make a racket simply by thumbing through stacks of used CDs. Young men approach the resale counter with handfuls of merch to return, then wander off to buy more as clerks tally their store credit.
Part of the difference is location: I-80 near Denny's versus Haste and Telegraph. But Tower and Amoeba also have fundamentally different ways of operating. One just got its head lopped off, while the other is has adapted to the download revolution.
On August 4, The Los Angeles Times reported, and industry sources confirmed, that the big four record companies Warner, EMI, Universal, and Sony were cutting off the flow of new music to Tower Records due to millions in unpaid invoices. On August 20, MTS Inc., the chain's holding company, declared bankruptcy for the second time in two years, citing online file-sharing and the mainstreaming of CD burning as two reasons for its flagging sales.
An industry source with the big four told Press Play that talks were under way to turn Tower's music faucet back on, but in the interim the chain may run out of high-demand merchandise such as new releases and special items. Chris, a clerk at the Emeryville branch, said the store still was well stocked, but is for now unable to special-order unique items from distributors. "We're calling another Tower right now to see if they have a copy of the What the Bleep Do We Know, special edition, for a woman who came in and wanted it special order," he said. At that point Chris' boss came over and said employees shouldn't be talking to the press.
Tower started in 1960 at a Sacramento drugstore and grew to 89 locations worldwide with the help of $110 million in financing. Unfortunately, Tower's mid-'90s debt expansion came amid the explosion of Napster and CD burners, as well as the emergence of fierce price competition from the likes of Best Buy and Wal-Mart. Tower filed for bankruptcy in 2004 and a bank bailed it out. Bankers will re-up to the tune of $85 million this August, but the chain could be dismantled and sold off piecemeal.
Conversely, Amoeba launched in 1990 and has grown slowly. "We have no intentions to dominate a huge market," clerk Jim Kaiser opined. Amoeba stores are huge, with hundreds of thousands of titles in all hard formats, but there are just three branches: Berkeley, Hollywood, and San Francisco. Tower makes crappy sales margins of 10 to 20 percent selling brand-new hits. Amoeba has margins as high as 400 to 500 percent through the continual repurchase and resale of music.
In fact, resale is Amoeba's main revenue source. Twelve music buyers at the store examine upward of forty thousand used discs a month after studying hard and taking a mock buying test. "It's much more art than science," Kaiser said. "You have to be able to recognize that some obscure brown wrapper with an arcane name could be worth thirty dollars to the right people."
Many other CD buyers, Kaiser added throwing in a little jab at Rasputin, Amoeba's rival down the block tend to scan everything, and if their proprietary music price index comes up blank, they'll give you a nickel for it. Amoeba, he said, buys discs for anywhere from a quarter to five bucks, and resells them from $1 to $11. In the incestuous East Bay, the store may sell and buy and resell the same disc several times, making money with each cycle. In this way, Amoeba truly is a living organism, taking in the detritus from its environment, processing and excreting while living off the cycle.
Of course, ripping and burning have cut into everyone's profits. "It's definitely affecting things," Kaiser said. "There's a mixed sense of badness." America's $12 billion record industry has seen a 25 percent decrease in CD sales from 2000 to 2005, according to the Recording Industry Association of America. And CD-Rs have gone entirely mainstream: North American demand in 2005 topped 2.49 billion CD-R and CD-RW discs.
But Amoeba has evolved, tapping the rip-and-burn culture with an increasingly popular "rental" policy that has attracted legions of tech-savvy college kids. Customers can buy a CD, rip it, and bring it back within one week for a 75 percent store credit. Kaiser said there are hard-core fans who come in on Saturday mornings with $150 of recently purchased merchandise and leave with a different stack of CDs. Rippers and burners can buy music this way and get nineteen additional discs for the price of an initial eight.
The overall decline of CD sales, meanwhile, corresponds with an uptick in the availability and profitability of live music, according to a recent research paper by professors Julie Holland Mortimer at Harvard and Alan Sorensen at Stanford. Amoeba's numerous free in-store concerts draw people to an experience a pirated MP3 can't provide, and those customers inevitably see something they want, at least in the dollar bins, where sales margins often run 400 percent.
Tower may not go away, but even Amoeba's long-term future could be in doubt as people start talking about the Death of Physical Media.
"It's something I'd rather not dwell on," Kaiser said. "Then again, we still sell a lot of vinyl."
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