Technology Revolution Taking Its Toll
It's not often that we get to bring you technology news from South Africa...
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By Ron Derby, Business Day, 30 January 2006
CD sales still growing — among some customers — but the new technology revolution is sure to take its toll of retailers who do not keep up with trends.
EXECUTIVES at some of the world’s largest media companies have awoken from their slumbers to find new developments, particularly the revolutionary MP3, tearing at their profits.
Media executives have started rallying their troops to start dealing with the problem, which has hurt margins.
In the US, the threat has moved on from the music industry to movies and television programming. Disney’s new chief, Bob Iger, has already agreed to let Apple sell television shows over the internet. MP3 technology has indeed arrived and its most vociferous detractors have started to change their tune. As their anxiety dissipates, they are embracing, and profiting from, the technology.
The Financial Times reported recently that record company executives, promoters and lobbyists are now celebrating the rapid growth in legal sales of digital music that has placed power of choice into the hands of consumers.
Last year, SA music retailer Musica introduced the country’s only legal digital download site through a licensing partnership with OD2 of the UK.
Musica merchandise executive Michelle Dods says the store is embracing technology changes — but bandwidth challenges prevent full exploitation of the benefits .
“However, as more people buy personal computers and ADSL lines proliferate, the opportunities grow,” she says.
As to the bottom line, Dods contends that SA was one of the few (if not the only) countries to show growth in CD sales.
Retailers in the UK and the US have been hard hit by new MP3 technology, with percentage declines in sales reaching double digits.
Industry insiders say there are 75000 iPods in SA, 60000 of which were bought through “official” channels and 15000 directly imported by consumers.
The iPod revolution arrived in SA in January 2002. Last year, 35000 iPods were sold, outstripping by far 2004’s figure of 15000.
Dods admits that the local music industry has been hit hard during the past few years because of new technologies, pirating and consumers’ perception that music is overpriced.
Despite this, she says: “December last year saw some growth coming from the local music industry and we (Musica) had a tremendous month, whereas both UK and US music retailers have had the opposite experience.”
New Clicks’ entertainment division, which includes the CD Wherehouse chain, reported 21,7% sales growth for its year to the end of August last year.
Dods says the key differentiators of the SA market are that
One of the country’s fastest growing music retailers, Reliable Music Warehouse, caters mainly for black consumers in the LSM 2-5 ranges. Its CEO, Faizel Dajee, says MP3 technology has not hurt their CD sales as Reliable’s consumers are not in an MP3 technology frenzy.
For CD Wherehouse and Musica, with their different customer profiles, the MP3 revolution is a more immediate threat.
Dods says Musica has repositioned itself to become an entertainment business, with a broader focus on DVDs, gaming and lifestyle products such as a branded accessories, posters, figurines and clothing.
Almost two years have passed since Musica dropped the prices of its Top 20 CDs to R99,95. This price-cutting, says Dods, allowed the chain to outperform the local CD industry’s growth — “but obviously at lower percentages than in previous years”.
The response to the technological wave by US and UK companies has been called “complacent”, with Dods saying: “We cannot stay as we are.
“We acknowledge that we need to be part of the change in the way in which our customers are consuming music, so we are exploring various opportunities for the future.”
Dajee says Reliable is strategising around MP3 technology and players such as iPods.
“But outcomes from these brainstorming sessions are four to five years away. New technologies are not going to affect our business in the next year or two,” he says.
Recording Industry of SA MD David du Plessis says that, as with cassettes in the 1970s and CDs in the 1980s, iPods and MP3s may well become the preferred format for many South Africans.
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