Compact discs sing a hi-tech success story

Just two years after the introduction of the $900 CD-101 compact disc player in Japan by Sony, worldwide sales of players have reached 1.2 million units, with sales of the 4-3/4-inch discs topping 22 million units. This translates to roughly $800 million and euphoria in the audio industry.

It took prerecorded cassette tapes six years to achieve this degree of market penetration, and they now make up 37% of recorded music sales.

Despite a five-month lag between the debut of the compact disc (CD) player in Japan and the U.S., a scarcity of players six months after entry, and a disc catalogue that numbered only 2,000 titles by the end of last year vs. 80,000 long-playing record titles, the U.S.’s share of the market is a hefty 22%-23%.

Player sales of around 250,000 for 1984 were up 671% over 1983, though shipments didn’t really get under way until mid-summer of that year. Disc sales of 4.9 million units in 1984 were up 512% over 1983’s tally of 800,000, and industry observers project sales of 9.9 million discs in 1985. Essentially, the last half of 1983 was spent educating dealers and consumers and jockeying for market position by hardware manufacturers.

Sony’s initial thrust was directed at audiophiles. To reach this select group, the company supplied 55 top audio specialty dealers and 300 radio stations with disc players and point-of-purchase material.

Says Marc Finer, product communications manager for Sony Consumer Products, Park Ridge, NJ, “We deliberately started slowly because Sony’s approach is to lead technologically and to provide marketing–training, education, advertising, promotions–to create awareness.”

The company’s efforts were supported by ads in the audio magazines Stereo Review, High Fidelity, and Billboard, and the plugs the company received each time a radio station played a disc on the players supplied by Sony, which also involved itself in joint promotions with disc manufacturers. A play for the masses

A typical promotion was the company’s tie-in with CBS Records, PolyGram, and Warner/Elektra/Atlantic to sponsor a “Date with Digital” audio display, at the 1983 and 1984 music festivals held during spring break in Daytona, FL. Sony supplied players for the demonstration booth as well as a player and stereo receiver as prizes for a sweepstakes drawing.

At the beginning of 1984, the company set its sights on the mass market for which it had developed the CD-200 with a suggested list of $700. Retail outlets grew from 200 at the end of 1983 to 8,000 by the end of last year. Though company spokespersons won’t discuss market share, some industry observers credit the manufacturer with at least 48% of the CD player market.

Technics, JVC, Denon, and Yamaha used pretty much the same strategy as Sony while Magnavox, Fisher, Sanyo, and Sharp zeroed in on the mass consumer arena as soon as they entered the market.

Magnavox installed demonstration models for a two-week period in outlets of 26 department-store chains around the country. Fisher, Sanyo, and Sharp also targeted the mass market, delivering their products to audio chains and department stores.

The parent company of Magnavox is Philips N.V., Eindhoven, Netherlands, the original developer of CD technology. Sony was brought into the picture by Philips to perfect the technology for error-free performance.

The sound on compact discs is picked up by a tiny laser beam that reads pits with numeric values that are molded into plastic that is coated with a thin layer of aluminum. Because no stylus touches the discs, their life is indefinite. They don’t break or easily scratch.

Says Leslie Rosen, executive director of the Compact Disc Group, a nonprofit trade association, “I guess you could destroy them if you wanted to, but it’s something you would have to deliberately want to do.”

Despite these obvious advantages and the fact that sales of components and music had been stagnant for several years before CDs came on the market, most audio dealers and record retailers were reluctant to take on the digital product. Many had been burned by other audio “revolutions” such as 8-track cartridges, which have all but faded into the night, and quadraphonic sound, which never gained a firm foothold.

The audio dealers took a show-me stance, waiting for assurance that record companies were really committed to the format. Both component dealers and record retailers were also waiting for the hardware to come down to a level that middle-class consumers could afford: players in the $500-$700 price range.

Sony’s initial entry into the U.S. market, the CD-101, carried a suggested list of $900. By the end of 1983, there were 16 manufacturers in the field with players ranging in price from $800 to $1,200, retail.

At the January 1984 Consumer Electronics Show (CES), a downward price trend became evident. Sony and Sansui each showed models with suggested lists of $700, while Yamaha, Sanyo, and Sherwood introduced players for even less. Yamaha offered its Model CD-XI at a suggested list price of $649; the suggested list for Sanyo’s CP-200 was $549.95, while Sherwood tagged its CDP-100 at $499.95. Shortly after the winter show, Yamaha dropped the suggested list on its CD-XI model to $550 to better compete with the less expensive Sanyo and Sherwood players.

Six months later at the summer CES, prices slid even more. Some 7 of the 30 models exhibited were priced under $500, with Sharp leading the price break on two models, the DX-100, with a suggested list of $399, and the DX-600 at $449.

By the end of 1984, the price range on some 60 models being manufactured by 32 companies ran to a low of $299.95 for Sony’s D-5 portable, introduced in November, to a top price of $1,600 for Kyocera Corp.’s DA-910.

In addition to players being put on the market with initially lower price tags, prices on first- and second-generation models were being cut drastically. Magnavox slashed $300 off one of its models and $400 off another. “The consumer was saying ‘get the price down,'” says Stan Veltkamp, vice president, audio sales, for Magnavox. “It makes sense to us to try and get our CD line in place at the right distributors at the right price.”

Disc prices experienced a similar downturn, dropping to $15.99 retail, from an initial price range of $17-$20.

Warner/Elektra/Atlantic, the recording arm of Warner Communications, Burbank, CA, precipitated the drop in retail prices last July when it cut its wholesale price to dealers to $9.81 from $11.64. The other labels quickly followed suit.

Cal Roberts, senior vice president, operations/marketing, for CBS Records, says he does not expect wholesale disc prices to drop much further. “I don’t think the economics will permit this” he says. “The cost of putting out a CD is $2.50 per unit, twice the cost of producing an analog record.”

The first CD production facility, Digital Audio Disc, a joint venture of Sony and CBS Records, opened in Terre Haute, IN, in August. Roberts says that by mid-year the production unit will be issuing 300,000 discs a month.

Not all record retailers waited for disc prices to come down before carrying them. Art and Jon Shulman, who own four Laury’s stores, headquartered in Niles, IL, and Russ Solomon, president of the 36-unit Tower Records chain, Sacramento, CA, started promoting discs some 19 months ago when the total catalogue numbered 500 titles. Disc pioneers

“We jumped into CDs immediately,” says Art Shulman, who reports that discs represent 30% of his sales. “We did everything and anything we could to associate ourselves with them and establish ourselves as the medium for CDs in this area. We had 100 titles when none were available. A month after we got into CDs, we put lists together of likely buyers and started mailing out a monthly catalogue. Now we’re shipping discs all over the world.”

Solomon of Tower Records conducted basically the same kind of promotions, advertising heavily on local rock and classical stations in the areas where he has stores, as well as running full-page advertisements in metropolitan dailies.

four months ago, CDs accounted for 4.5% of Tower’s $150 million annual revenues. By year-end, the annual average was 8% and during the holidays it floated between 20% and 40%.

Rudy Simpson, buyer for Tower’s classical store on Sunset Blvd. in West Los Angeles, says that sales of 2,000 to 4,000 discs on a weekend are not unusual.

As discs become more important to the unit’s mix, Simpson keeps upgrading the CD section, which two years ago was a wall bookshelf and now has grown to a separate room equipped with two players and headphones. Tower’s disc prices average $14.95. Sale prices are $1-$2 lower.

Though there are still some skeptics, Bill Silverman, director of communications for the National Assn. of Recording Merchandisers (NARM), says, “The compact disc is here to stay. The CD has already passed the point beyond which there’s a question of whether it will survive or not.”

John Briesch, vice president, consumer audio sales and marketing, Sony Consumer Products, says “there is no doubt that the digital audio compact disc system represents the future.”

Shulman of Laury’s agrees. “We’re all vets in this business and we’ve been through a lot of phoney baloney,” he says, “but this is a real advance, not something done with mirrors and as important as it’s being for real, it’s very easily demonstrable to a customer. All you have to do is put some earphones on them and after two or three seconds of listening, they’re yours.”

Briesch is an officer of the Compact Disc Group, formed by the Recording Industry Assn. of America (RIAA) in 1983. Last March, the group spun itself off from the RIAA and set itself up as a not-for-profit trade association to promote CD technology to the consumer. Its members come from the audio and recording industry.

What this means in practical terms is cooperative effort between members of the two industries to increase public awareness of CDs through seminars and joint promotions. Rosen says that two years ago none but the most sophisticated audiophile knew what a compact disc was. Today, says Rosen, “15% of consumers know about them.”

While it was the adoption of the Philips/Sony technology as the single standard for CDs that helped to push them to quick success in the market, there is no such agreement on packaging, with the two-year-old debate of blister wrap vs. cardboard pack still unresolved.

But that is not uppermost in the minds of most of the industry. Everyone is anticipating that portable and car models will do for the CD what the Walkman personal stereo and auto tape decks did for cassette tape sales.

Some, however, think discs have their drawbacks. As one consumer put it, “What good are they if you can’t record on them at home?”–the same argument that sunk the videodisc player.

But, for audiophiles who become spoiled by the quality of compact discs, Sony offers two digital processors ($700 and $2,000) capable of reproducing near-CD quality on cassette tape. Furthermore, compact disc player manufacturers will continue to receive steady promotional help and new titles from record company executives thrilled by the fact that the popular new technology cannot be cheaply reproduced at home.

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