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CDs, New Music Put Recording Industry Profit Back on Track

May 17, 1987|Wm. KNOEDELSEDER Jr. | Times Staff Writer

It took eight years, but it appears that the U.S. recording industry is finally back on its feet. For now, at least.

According to figures released last month by the Recording Industry Assn. of America, the retail value of shipments of records and tapes reached $4.65 billion in 1986, topping the industry's previous best performance of $4.1 billion in 1978.

Considering that the record business went into a devastating four-year decline beginning in 1979 and has been struggling ever since to stay even, the recent figures are fueling a bit of euphoria in the executive suites of major record companies.

In the midst of the slump in 1981, some experts had predicted the industry would never again reach its 1978 sales level.

But for 1986, industry leaders CBS Records and Warner Communications posted unprecedented pretax operating profits of $162 million and $151 million respectively, and performed even better in the first quarter of 1987, with CBS reporting a pretax profit from record operations of $68 million and Warner coming in with $47 million.

Expects Record Year

The CBS and Warner record operations are far outperforming those companies' other entertainment divisions, said Geffen Records Chairman David Geffen, which means that "the record business can no longer be viewed as the poor stepchild of the entertainment industry." Geffen's 5-year-old firm has only 40 artists on its roster. "We had sales of more than $50 million last year, with (operating) profits of $8 million," he said. "We'll have a record year in 1987, with any kind of luck between $60 million and $65 million in sales. Every company that I'm aware of is making record amounts of money. It's a boom across the board."

The question is, how long will it last?

RIAA figures indicate that in 1986 the number of records, cassettes and compact discs shipped actually declined from 1985 by 5%, to 618 million units, far below the 726 million shipped in 1978. The overall rise in dollar volume and profitability is attributed primarily to the soaring sales of compact discs, which carry a retail price of $12 to $15, as opposed to $8.98 or $9.98 for records and cassettes. According to the RIAA, the value of CD shipments was $930 million in 1986, an increase of about 139% over the year before.

According to retailers, the preponderance of CD sales is coming from consumers replacing older albums, not buying new releases. Consequently, some record executives are worried that the popularity of the new compact disc configuration is just masking the fact that the record business is not expanding. "What's going to happen when the consumer fills up on old products?" one executive asked. "Is this boom just an illusion? Are we living in a fool's paradise?"

All the record company presidents interviewed for this article said they expect the upswing to continue for the foreseeable future. Of course, that could mean only a year in the historically shortsighted record industry, where, as one top executive put it: "Future planning is where you're going to have lunch on Thursday."

Indeed, the current euphoria among record executives stems from the fact that the fourth quarter, rather than the first, is traditionally the best for the industry. Therefore, they expect the remainder of this year to be even better, reflecting sales of just-released or soon-to-be released albums by such major artists as Fleetwood Mac (on Warner Bros. Records), Whitney Houston, whose last album on Arista Records sold 8 million copies, and Michael Jackson, whose 1983 "Thriller" album on CBS' Epic label ranks as the best-selling album in history--about 35 million copies.

Polygram's Turnaround

"I think it's intelligent to have concerns about the future and, at the same time, feel good about what's going on now," said Polygram Records President Dick Asher, whose company is widely cited as an example of the industry's recent turnaround. The European-owned firm was threatening to leave the U.S. market in 1983 after absorbing losses of $200 million over the previous 10 years.

But Polygram has rebounded since then with three platinum albums (sales of a million or more copies) by the rock group Bon Jovi and one by the rock band Cinderella. Bon Jovi's "Slippery When Wet" album currently is No. 2 on Billboard magazine's chart of best-selling records and tapes, with sales nearing 8 million copies, making it the biggest-selling record so far this year. The company also currently has a top 20 hit with the Robert Cray Band's "Strong Persuader" album.

"I'm told that last year we had our highest profit ever," Asher said. "I have to admit it's a bit of a new sensation. In the first four months of this year, we're already quite close to where we were at the end of last year."

Adds Bob Krasnow, chairman of New York-based Elektra/Asylum/Nonesuch Records: "We're not looking at a mirage. This will be our biggest year ever, and the bulk of our revenue is not coming from older products; it's coming from new artists."

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