< Return To Hearing
Director of Merchandising Operations
Testimony of Ismael Cuebas
Tuesday, July 12, 2005
Trans World is a member of the National Association of Recording Merchandisers (NARM). Founded in 1958, NARM is an industry trade group that serves the music retailing community. NARM's diverse membership includes brick-and-mortar, "click-and-mortar" and online retailers, wholesalers, distributors, content suppliers (primarily major and independent music labels, but also video and video game suppliers); suppliers of related products and services; artist managers; and consultants, marketers, and educators in the music business field. The Association's retail/wholesale membership alone represents about 25,000 stores and 500,000 employees.
Trans World is one of the largest entertainment retailers in the United States. Founded in 1972, the company currently operates over 800 stores in 46 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Trans World operates
Trans World's mall locations operate primarily under the FYE--For Your Entertainment brand. The Company also operates freestanding locations under the names Coconuts Music and Movies, Strawberries Music, Wherehouse Entertainment,
Trans World is also designing and developing the next generation of our innovative listening and viewing stations (LVS) called LVS 3. This is a next generation of technology for our customers, which will enhance their overall in-store experience and expand our sales opportunities through new product information displays and full catalog search capabilities.
LVS 3 is more than a device and an improved set of information; it's a whole new technology platform being designed and built to support the growing business of digital media whether burning a CD, delivering digital music to the home, or filling a portable player in the store. Available later this year, LVS 3 will be a destination within a destination--a place in our stores where customers can view promotions, search and browse our full product catalog, place special orders for product not in the store and select digital music in the manner of their choosing.
Music retailers continue to face significant business challenges. A year ago this month, CD sales were ahead of 2003 by about 9 percent. By the end of 2004, that lead had dropped to about 2 percent, but still provided the first positive numbers since 2000. So far this year, however, it has been a decidedly different story. At mid-year,
On the other hand, sales of digital tracks continue to post huge increases year-over-year and offer promise for bright prospects for the entire industry. Consumer demand is clearly there for digital music delivery, fueling increasing interest among
We know that one of the best ways to reduce the demand for pirated digital
This is no small challenge and time is definitely not on our side. With this
Retailers are excited about the prospect of introducing these new offerings in their stores to meet the demands of consumers. Options may include downloading full albums onto a burned CD or portable device; compiling multiple songs onto a custom burned CD or portable device; downloading songs on demand to a portable device; or even downloading songs in the store and sending them to a home or office computer.
Some of the other ideas being talked about include having "just in time" delivery of a sound recording so that a store is always "stocked" and retailers don't lose sales opportunities; and offering out of print recordings or recordings that appeal to niche audiences that stores don't carry because there isn't sufficient space to support demand. Even more exciting is the opportunity to provide consumers with one-of-a-kind, special products like limited distribution of a live concert within days of the performance.
In March 2004, NARM formed a Media-On-Demand Task Force comprised of prominent retailers conducting beta testing of in-store CD burning kiosks. The Task Force spent months sharing experiences and gathering information from retailers, record labels and CD burning technology companies. In February 2005, the Task Force gathered almost 50 representatives from the technology, computer hardware, content and retail communities.
This first meeting was noteworthy because it exemplified a willingness of competitors and trading partners to exchange issues and concerns about how to make this new technology suitable for retailers. The successful meeting concluded with a shared commitment by all participants to get actively and quickly engaged in seeking solutions to shared challenges.
After careful analysis and exchanging specific concerns with the content and technology companies, the Task Force held their second meeting in June 2005 to explore further how retailers can compete with "free" by creating a compelling value proposition for consumers.
Buoyed by business opportunities to increase special order sales, Task Force members are nevertheless concerned with the slow progress being made in the amount of content available for burning. Whether it's full-length albums or single tracks, the quantity of music that retailers currently have to offer their customers for lawful burning is discouraging.
A significant amount of music is still unlicensed, largely because of the extraordinarily burdensome process that is required. While we are actively working through a myriad of other key issues that need to be addressed as well, clearly the burdens of the music licensing process have surfaced time and time again as
In order to support these digital delivery initiatives, we need to modernize the Section 115 license. The Section 115 mechanical license was created at a time and for a technology that doesn't fit with today's new digital technologies.
The license also requires that a royalty be paid on any copy of a sound recording, however many "copies" are made in the process of producing digital downloads
As this Subcommittee is probably aware, a number of proposals have been offered in the past few months by the various parties involved in the debate over modernization of the Section 115 license. I will take a few moments to comment on these proposals from the NARM perspective.
NARM, together with RIAA and the Recording Artists Coalition (RAC) have strongly advocated a broad blanket license that would cover all technologies and speed up the licensing process. In our view, retailers have a brief window of opportunity in which to launch digital services and capitalize on the growing acceptance and demand for music in a variety of digital formats.
The current Unilicense proposal being suggested by the performing rights organizations, music publishers and songwriters, does not meet our test as it is too narrow in its scope. The NMPA/PRO/Songwriters proposal applies only to "time-based subscription fee" services. While some retailers may choose to offer subscription services, others are considering alternative digital distribution configurations that will not be subscription-based. Some may do both.
The Copyright Office's proposal would offer broader blanket licensing for the distribution of phonorecords, but unfortunately, the administrative process resulting from eliminating the compulsory license altogether would likely create more uncertainty,
The music industry needs a vehicle to attract the consumer by offering an exciting value proposition. NARM believes that this is DualDisc. Under the current system, for example, it could take more than 100 separate licenses to clear one DualDisc, which is hindering a more robust release schedule.
NARM continues to advocate for a legislative solution that will provide for a broad blanket license with a simplified administrative process so our members may get even with, or ahead of the curve instead of remaining behind it. We are committed to moving forward with both one-to-one and group negotiations, and look forward to working with you and your staff to help resolve these important issues.
I thank the Committee for this opportunity and ask that my written testimony be made part of the record.