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  Industry Profile




Industry Profile: Jim Donio

— By Larry LeBlanc (CelebrityAccess MediaWire)

This week In the Hot Seat with Larry LeBlanc: Jim Donio, president, National Association of Recording Merchandisers (NARM).

Jim Donio, president, National Association of Recording Merchandisers (NARM), is a happy camper as he completes the final touches of his annual message for the 2011 NARM convention in Los Angeles from May 9-12th, 2011.

For five decades, NARM has been the trade association for the business of music, providing the central forum for discussion of industry-wide concerns, and spearheading initiatives to advance the sector.

NARM had its beginnings in the spring of 1958 when the Toiletry Merchandisers Assn., comprised of health and beauty aids manufacturers, was holding a convention in Miami Beach. The rack jobbers were then just beginning to take on record lines, and a three hour seminar was set to discuss music merchandising.

The idea of what was to become NARM developed from this session, which was attended by leading record industry executives.

In Sept., 1968, NARM held its first directors’ meeting in Chicago. Its inaugural convention took place at the Edgewater Beach Hotel in Chicago in 1959.

One of NARM’s earliest public relations programs was aimed at presenting the record industry with a true image of the rack jobber—a wholesaler fulfilling a function performed by no other segment of the record industry.

As NARM flourished in those early years, it began to provide cohesion and directional growth for all music merchants.

Over the past decade, as NARM moved to adapt its mission to reflect the music industry's transition to digital distribution, the organization has continued serving its roots in physical distribution and retail.

NARM has grown to include all facets of music commerce, including physical, digital, and mobile outlets as well as in gaming, applications, merchandise, video and other ways music is monetized.

Its members include leading digital and mobile companies, as well as music wholesalers, retailers, and suppliers of related products and services. Individual professionals and educators in the field of music are also members.

Donio has been NARM’s president since 2004, during a time when album sales in the U.S. have declined 29% from 656 million units in 2003 to 226 million units in 2010.

Donio has worked his way up through NARM since joining the organization in 1988 as director of creative services, largely focusing on editing a monthly newsletter, as well as creating a series of promotional and informational publications and materials. He also oversaw creative services for the Video Software Dealers Association (VSDA) that NARM then administered.

In 1991, he was promoted to communications director, adding public relations and marketing duties. In 1995, he began to oversee NARM’s conventions and conferences as VP of communications and events.

In 2000, Donio was promoted to executive VP, handling most of the organization’s day-to-day administrative and operational activities.

Prior to joining NARM, Donio held a variety of editorial, public relations, and event-related positions for the Association of Information Systems Professionals (AISP), an international organization for office systems professionals.

A Philadelphia native, Donio earned his Bachelor’s Degree in Journalism from Temple University.

During NARM’s 2010 convention, music retailers and wholesalers once again lobbied record labels for lower prices to stem plunging CD sales, and reinvigorate store traffic. While the labels have reduced CD prices, such action has done little to stop leading big-box retailers from scaling back the presence of music in their stores, leading to further declining sales figures overall.

Total recorded music sales in the U.S. declined by 7% to $6.2 billion in 2010, driven largely by a 16% plunge in CD revenues. U.S. digital sales only grew 1.2% in 2010.

These figures, perhaps, illustrate why labels are both anxious and fearful for Google and Spotify to enter the U.S. digital market. They welcome the increased internet presence for music content, but are fearful that CD sales may plummet even more.

Despite the popularity of digital music, from single-track purchases to subscriptions, physical continues to generate the most music revenue in almost every market in the world.

The Global Recorded Music Market Forecast report from Strategy Analytics (March, 2011) predicts that while single track downloads will remain the single most important digital music revenue model, advertising and subscription models will gain in importance over the next five years.

The digital business will be dominated by single-track sales until 2015 according to the report. It forecasts that individual track sales will account for 29% of the market then while digital albums will make up 32%. Alongside this, subscription-based services will hold 14% of the market.

While music commerce faces immense challenges in the digital age, NARM continues to navigate the prevailing ill winds.

NARM worked with the Recording Industry Association of America (RIAA) to revive the “Give the Gift of Music” campaign that provides consumers with ideas on how to give music—both CDs and digital formats—as gifts, and providing retailers support materials that highlight giftable titles.

NARM also sponsors the annual Record Store Day, bringing together independently-owned record stores and artists to celebrate the art of music.

This year’s Record Store Day took place at more than 1,000 record stores nationwide, and across the globe on April 16th. There were over 300 releases—both exclusive and non-exclusives, including the White Stripes. There were also in-store performances by the Foo Fighters, My Morning Jacket, Regina Spektor, the dB's, British Sea Power, and Holly Golightly.

Through the years, NARM has helped forge solutions to a host of operational issues surrounding the sale and distribution of physical product. Today, the organization is largely focused on similar challenges faced with the growth of digital music.

In 2010, NARM developed its Digital Think Tank, a task force dedicated to resolving enterprise-level issues in the digital music business.

While most people see CDs as a dying business model, Donio still sees value in physical product while consumers are still willing to buy CDs (at the right purchase price, of course), and retailers are still willing to stock them.

While he still sees value in physical product, Donio also talks enthusiastically about new digital business models, and companies reshaping themselves for the digital era, and partnering with others to build new digital sales channels.

The NARM convention could be considered the annual checkup of music.

I have just finished writing a welcome message for the convention to be published in our program. The interesting story about the convention is that this is the first time that we are back with the convention in Los Angeles proper since 1990. That was the first convention that I attended, and helped to execute with NARM. It was at the Century Plaza Hotel, which is where we are again 21 years later. So it’s a very interesting déjà vu in connecting the dots.

You look back—as I did when I wrote the message, and which I will do with the speech I will deliver at the convention—21 years is a very long time. You almost can divide it in half, and say the industry from 1990 to 1999 was one industry; and the industry from 1999 to 2011 is a completely different industry.

From 2006 to today, in fact, is a different industry.

That’s true. But as you look back, you have to say there have been incredible, unprecedented developments in the way that people discover music; the way that they consume music; the way that they decide to purchase or not purchase it. Everything that has happened since 1999 could not have been foretold when we all sat in this ballroom in 1990—the exact same ballroom we’re going to sit in again.

Ironically, the theme for that convention in 1990 was “Welcome To The Digital Decade.” That was the theme. Nobody in that room, I don’t think or in the business, could have imagined what would happen with Napster, and everything that came after that almost 10 years later.

There’s been a decline of people attending the NARM convention in recent years. How many do you expect this year?

It’s been pretty flat for the past three years or so at a little more than 900 folks. I’m really excited about what’s coming on at our awards dinner. We’re honoring “American Idol” on its 10th season. We’re giving Annie Lennox a Humanitarian award named for Harry Chapin, who we are commemorating on the 30th anniversary this year of his untimely passing (on July 16, 1981). We’re honoring Brian Wilson who doesn’t do many of these things; and honoring the iconic songwriting team Gamble & Huff (Kenneth Gamble and Leon Huff), which has a personal connection for me because I’m a Philadelphian and they are the architects of ”The Sound of Philadelphia.”

NARM has over 400 members. That’s down from 1993 when it topped 1,000 members.

It’s a reflection of the business.

At the 2010 NARM convention, the hot button issues were price cutting, big box stores scaling down, and the single versus the album. What are the big issues this year?

In the past couple of weeks, there’s been lots of articles about the next iteration of digital business models, including the cloud-based business model. So I certainly expect that there will be conversations about what’s going on with that. There are also a few larger players, Google and Spotify, poised to enter the business that everybody is waiting on to see what is going to going to happen, and how we are going to navigate the new models.

There are also incredible changes afoot among the largest music companies in the world with the Warner Music Group and EMI situations right now. I'm sure those will be primary topics, hot topics for speculation, and conversation, both in public and private forums at the convention.

Certainly, with the somewhat optimistic sales trends that we have experienced in this first quarter (of 2011), I’m sure people will be looking at that, and trying to sort of get under the hood, and talk about what’s up with that. Does (the surge) look like it’s purely release-based? Catalog is up for the year. We haven’t just chipped away at the declines, catalog is actually up. So those will be the key (talking) points.

The growth of the mobile market with the introduction of the smart phone as well as the continued popularity of the gaming market will likely be discussed as well.

Yes. We have a very diverse program. We will be looking at visual applications and gaming which certainly intersects directly with the mobile market as well. We are doing a workshop on social media which certainly circles back to the mobile market, and the smart phone as well. Will people begin to gravitate more toward the mobile device as their primary link to the internet and to their primary link to social media etc.?

That’s a reasonable expectation.

That’s a reasonable trend to be looking at. How will that affect what goes on with music and media? It’s not just about music; it’s about media as a whole.

NARM is doing the Music Crash Course again this year. It’s been a very successful program.

Yes, it has been successful. We brought it back. We had done it for a couple of years. It circles back to the old NAIRD (National Association of Independent Record Distributors). They had done it at their convention. When NAIRD went out of business, and there were a couple of years of transition, NARM sort of took it on. As they restructured or re-created A2IM (The American Association of Independent Music), we partnered with them at our convention for a couple of years. A few years ago, we talked to Richard Bengloff (A2IM president) from the Fordham Graduate School of Business, who teaches a course about this, about bringing the music crash course back in a more formal way, with an established curriculum for the day and a half. So we brought it back in at the convention in San Diego in 2009. We were optimistically hoping for 70 or 80 people, and we had over 150 people. Last year in Chicago, we had between 150 to 200 folks. It is something that is needed.

You joined NARM in 1988 in creative services.

In 1988, I was a joint employee. In 1988, NARM and VSDA (The Video Software Dealers Association) were jointly managed. So I was the director of creative services for NARM and VSDA. That’s why my first NARM wasn’t until 1990. In ’88 and ’89 and into ’90, I was more primarily focused on VSDA. More of my time was focused on that organization and that convention. Then when we had the split in 1991, I stayed with NARM and this area. NARM was downsized considerably when we separated. Then we grew and then we downsized again.

Looking back 23 years in working with VSDA, and subsequently with NARM, in putting together these celebrated events, have been an interesting ride for me.

[The Video Software Dealers Assn. arose out of the Video Software Dealers Advisory Committee of NARM. The committee decided in 1981 that a separate association of video software dealers, with its own by-laws and board of directors, should be formed, with NARM providing administrative support. The first meeting of the VSDA board was held in 1982.

NARM AND VSDA shared staff, administrative expenses, and office space from 1981 to 1991. From 1981 to 1984, funding for VSDA primarily came from NARM. In 1984, VSDA became self-supporting. In 1991, VSDA and NARM effected a complete separation of their operations, staffs, and facilities.]

Did working with VSDA prepare you for organizing NARM’s 1995 convention?

Definitely. I had done events at my previous job in another association before. I was used to doing even larger events in the early ‘80s, for as many as 16,000 or 17,000 people. Adding the entertainment dimension with VSDA certainly was a great education. Just dealing with artists, dealing with their management, dealing with the needs, and behavior of an entertainment community while putting on an event for an audience that has seen it all, and done it all. I had to try and entertain those who were providing the entertainment. That was a challenge at the time, and it’s a challenge today that I really enjoy.

You became president of NARM in 2004. Just prior, NARM was being ripped apart over internet issues within its membership; and differences between the major labels over copyright and other matters.

All of those were happening. There was a swirl of controversy. It was a very adversarial time on all fronts. In the years 2000 to early 2002, when NARM sued Sony (Sony Music Entertainment), there were the issues that you just articulated. It created incredible tension. It created a lot of strife, and a lot of arguments. Nobody knew, at that point, what all of these things (with the internet) were going to yield. The retailers and the commerce partners felt they needed to draw a line in the sand for their own survival when so much was uncertain. (The uncertainty) created all of the friction that ultimately led to the lawsuit, and several years worth of very tense times between the trading partners.

[The 2004 departure of Pam Horovitz, who had led NARM since 1989, came amid shrinking music sales, which weakened NARM's primary members, the music retailers.

The advent of Internet commerce placed music merchandisers and labels at odds. As well, the difference in views of digital music commerce between music retailers threatened to pull apart NARM.

Music merchandisers were outraged by the label’s initial attempt to cut retail out of digital distribution by launching MusicNet and Pressplay.

Meanwhile, for years, NARM had ignored the demands by merchants to take legal action against the major labels over record club sales. In 2000, however, NARM brought an anti-trust suit against Sony Music Entertainment, alleging that the hyperlinks embedded in CDs leading to Sony's online stores, amounted to unfair competition. The suit was dropped in late 2001, after it became clear that NARM would likely lose the case. By then relations with labels had soured considerably.

As further digital issues emerged, NARM and the Recording Industry Assn. of America (RIAA), which represents labels, increasingly found themselves in opposition.]

The lawsuit with Sony was over embedding CDs with links to online stores.

The original argument was that there were links in the physical products that would drive consumers to "buy" buttons, and commerce opportunities that would take the customer away from the retailer who had (first) sold them the product—that this would divert them to the content providers and the labels and the artists themselves. It wasn’t quite that simple, however.

Was the response from NARM the result of pressure from its members over what had gone on for years with sale losses to the record clubs which the labels themselves owned?

Absolutely. So there was a climate of hesitancy. There was a climate of distrust that conspired to bring everything to a head. Yes, you are right. There were milestone issues that preceded that one. Record clubs are a very good example. (Selling) used product is another good example, and there were issues over packaging and pricing. There were a lot of things that preceded it. As I said there was just such a swirl of emotion and activity around that time. It all came to a head.

There certainly was a degree of uncertainty in music retail.

Nobody knows really what was going to happen. Everybody was trying to establish some base line principles, some ground rules that would help them survive whatever was going to come, although nobody could know exactly what was going to come.

Tower Records was one of the companies at the time that that very much wanted to have a digital presence, that wanted to capitalize on the internet. They were vocal about that, very vocal about licensing (from the major labels) and about the challenges.

Many retailers wanted what they saw as a level playing field—to be able to license the rights to sell music online.

There were a lot of the conversations (about that issue). This was certainly before there were digital only service companies, and not that many years before iTunes in 2003. It didn’t take long for us to know exactly how things were going to look. But in that little window of time, between mid-1999 through late 2002, nobody knew. It was certainly a low point.

But, truthfully, we had to go through that period.

We had to go through all of those very tense meetings, and conversations where we were holding up a lot of these issues that were really important to the commerce companies. NARM had to do that. NARM had to be that voice to amplify those concerns, I think, to come out on the other side to be an organization in 2011 that is extraordinarily diverse, and now runs the full spectrum of companies from both content and commerce—physical or digital or mobile, streaming or cloud-based. Whatever the model is going to be.

NARM has been about bridging that discussion between commerce and content, whatever commerce has looked liked. I think we had to go through what we went through to be able to be where we are now.

Labels were once fully reliant on brick and mortar merchants as a single pipe route. Not anymore. They have choices.

The dynamics have changed. What happened on the commerce side is that companies that weren’t exclusively focused on music (Wal-Mart, Best Buy Target etc.) came into the business, and began to dominate the business. They sold a lot of other things. That way of doing business certainly spilled over, even into the smaller companies and independent stores, so that the diversity and the product mix changed, and the dynamics as well.

Just coming off Record Day (April 16), I can say that the core and the heart—certainly the heart and soul—of those small companies that still think of themselves as record or music stores is that (music product) is still what gets their heart beating, and gets them excited. But they wouldn’t be in business if they were solely dependent on (music sales). That’s why they’ve changed their profile which is sort of a microcosm of the bigger box location. The diversity has enabled them to use music for their own purposes.

On the flip side, you look at the smaller (retail) companies, they want to be about music but they couldn’t survive just on music so they had to become gift stores and boutiques businesses selling clothing or cards or various types of collectible items or what have you, food etc.

Today, few stores are music-dedicated stores.

Yes, it is more of an entertainment destination. It’s a lifestyle, which is another term that is used more broadly. But knowing these entrepreneurs—knowing these savvy business people—their heart and soul is still the music. That is what is really drives them.

A decade ago, few could imagine a world without music retail outlets. Three or four years, people began to get scared that may become a reality. The tipping point for that fear in the U.S. was Tower Records going down in 2006.

Absolutely.

Is there a greater concern from labels about brick and mortar merchants? That past adversarial relationship seems to have dissipated.

You are right. At one point in time you would not have imagined that being the case. I think that there is an openness today that didn’t exist a handful of years ago. It depends on what the issue is. It has taken a transformative period of time to bring people to the table to talk about things.

But I wouldn’t say we are friction free. There are always going to be touch points that create that friction. But there’s a creative tension that’s good for the business. It challenges people. Even though there may be differences of opinion, people participate in the association as part of the community. It is what sets us apart from a lot of the for-profit events out there.

When the event is over, people just don’t go away. Maybe, they will be like ships that pass in the night if they do another event together. NARM is an ongoing community. The convention is a point in the year for a physical reunion, but 365 days of the year this is a membership organization that people belong to. There’s a sense of commitment to the community. I think that is what paves the way for there to be a more productive discourse on the issues that could, perhaps, divide us. There might be differences of perspective but, in coming together, we try to confront those problems.

Music sales declined in the U.S. by 16% in 2010. Digital sales only grew by 1.2%

We did a bit better in the first quarter. Happily, we have got some positive news in the first quarter of this year. We will see how it sustains. The big questions that everybody is looking at right now are, “Is there a bottom? Is there a flattening out? Is there a point in time where the physical product will just reach a point where (the configuration disappears)?” (Sales of physical music goods) might fluctuate a little bit, but I believe that some part of the business will always be a physical business. The product may change here and there, but there will always be physical.

[Total U.S. music sales slipped just 1.3% in the first quarter of 2011 from the same period a year earlier, according to SoundScan. The slowing decline is due to a surge in digital sales, with tracks showing an 8.6% gain in the first quarter to 339.1 million units from 312.4 million units in the first quarter of last year.]

What are your reasons for your optimism for physical goods? That downloading music has no emotional attachment to the music for people?

That’s how I feel. I think when you have Record Store Day, and you see photographs of hundreds and hundreds of people waiting in line—granted the naysayer will say that’s one day and blah blah blah—but, it still underscores the fact that they were not standing in a line at a kiosk to download something. They were waiting in line to get some physical manifestation of a musical artist or experience that they will cherish, that they will enjoy, that they will revisit, that they will give as a gift to someone else.

The digital business will be dominated by single-track sales until 2015, according to the report “The Global Recorded Music Market Forecast” released by Strategy Analytics in March (2011).

That has certainly been a very significant trend. If you look back to the advent of iTunes through to today, you are looking at this being a song-driven business. And if you look at the spectrum of artists now, you see that some artists have been extraordinarily successful as song artists, but not necessarily as full album artists; or are (doing) better live with their touring business as opposed to their album business. Then you have an artist like Lady Gaga who is sort of the paramount of the contemporary success stories who has success in all three areas. It’s a winning formula for the labels to continue to have the success that they have had and want to continue to have. Even in this climate.

I still believe in the album as a form. I still believe in the artistic aggregation of songs, story, image and message that an album creates and conveys. I think they (digital and physical) can still co-exist. We are seeing increases in digital album sales. Digital album sales are up in the double digits.

What is considered an album will change.

Right. What does an album mean? What does an album look like? Is it going to become an application? Is it going to be something that is going to be completely envisioned going forward? And I believe that—I think that there will be an album. But even the word album….we have done a lot of consumer research. If you ask really young people about an album, they think that you mean a photo album. They don’t even attach the word “album,” let alone “record” or “CD.”

So “bundle” or “collection,” whatever phrase that you want to use (for album), that needs to be iterated and envisioned for a new marketplace. Then, as these cloud-based business models materialize, how do you market? How do you make something stand out if everybody has access to everything all of the time? What will that do to marketing? What will that do to advertising? What will that do to everything all along the channel of how you get music in front of someone and let them know that there might be something out there that they might be interested in—if it’s not an artist that they follow and are devoted to?

I believe in the album format. I think there are still untapped opportunities to migrate it. I think that it will continue to be a smaller portion of the overall marketplace just based on units because, as you said, we have now customized the worldwide music fan base to be able to cherry pick a song when they want to buy, hear, or listen to it. Based on sheer units, I don’t see that pattern reversing.

The development of artists remains as a hurdle in a digital age.

The infrastructure has changed. The architecture around the business has changed. NARM has taken a very large and resourced leap over the past three or four years or so into the digital side of the business. We hired someone to run digital strategy for us. We created our Digital Think Tank, which started out with a dozen companies and 15 or 20 people. Now it’s up to 60 or 70 companies with 150 people participating.

As the record industry continues to contract, it is seeking to adjust to the realities of lower revenues.

Everybody has to recalibrate. That’s what the larger companies have done, that’s what the larger labels have done, that’s what the commerce companies have done. And they adjust accordingly, whether they are adjusting their footprint; whether they are adjusting their inventory; or adjusting their commitment to a broad range of product. On the label side, since they are not selling different other things—they are just selling music—they have had to look at consolidating operations within the company.

Even though less trade revenue is collected, digital has the opportunity to offer better margins than physical formats. There will still be substantial costs to bringing music to market, but digital sales means eliminating the high cost of in-store marketing as well as the costs of manufacturing, storing and distributing physical product.

Right, but you are also comparing selling a song with selling a full album. You look at a successful single download—if you sell a million songs, wow, a million songs! Well, that’s an equivalent of 100,000 albums. Of course, 100,000 today is considered very differently than it was two, three or four years ago, but the (smaller) scale is still confronting you. To make the kind of numbers, two or three or four million albums, that the labels still aspire to if they have an artist that can achieve that, is difficult. Look at the artists that are based solely around individual song sales. Trying to reconcile those numbers and the revenue that is attached to it.

I can envisage groups of (label) people sitting around a conference table when they are cultivating their rosters, when they are looking at their release schedule, when they are looking at (sales) forecasts, and trying to make the numbers work. No matter what size your business is, whether you are a single store retailer or whether you are a small independent label, the bottom line is the bottom line. You can’t continue to spend more than you make. No individual or business can operate that way.

If music is available all the time through streaming or downloading, do I need to purchase and own music?

The patterns will continue to change. You will have people buy or not buying full albums, perhaps, for everything. But, for an artist that people are really devoted to, an artist that you have a sense of support or familiarity with, I think that they will continue to want to have the music. There’s also the whole aspect of gifting. We do a very big campaign that we revitalized in November (2010) called “Give The Gift of Music.” We have a new website for it.

What was behind re-introducing the “Give the Gift of Music” campaign?

It needed to be re-envisioned for a digital and social media marketplace—that the way in which you can let people know that there is music out there, that you would love to receive as gift, that there are new tools to do that. To share your memories of a music gift that you received or that you gave that meant something to you—that underscores a particular artist or a piece of music or a moment in your life—those messages can be shared in such incredible ways around the world that we couldn’t do before.

So we re-envisioned it for a new marketplace and we are continuing to develop (the site). It’s largely artist and fan base in terms of messaging on the site with artists sharing their memories, and fans sharing their memories (of music).

There’s a searchable data base if you are looking for a particular gift for someone or a type of music or a particular artist and you want to know when something is coming up. It might be around your wife’s birthday or graduation or whatever. You can do that. You can do a gift registry on the site. If there are three albums that you would like to receive for Father’s Day you can just put them in and send it to someone. We’re trying to make it fun and interesting. There are no limits to the way in which people can gift music.

Consumers want choices.

Definitely, the consumer wants to have choices, and there’s a spectrum of choices out there now. I don’t think that is going to change. It's going to continue. There will only be more choices.

Larry LeBlanc is widely recognized as one of the leading music industry journalists in the world. Before joining CelebrityAccess in 2008 as senior editor, he was the Canadian bureau chief of Billboard from 1991-2007 and Canadian editor of Record World from 1970-89. He was also a co-founder of the late Canadian music trade, The Record. He has been quoted on music industry issues in hundreds of publications including Time, Forbes, and the London Times. He is co-author of the book “Music From Far And Wide: Celebrating 40 Years Of The Juno Awards.


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