Tower Records Leaning



What does it mean for classical music?

In the months since word of Tower Records‘ buying hold on the indie classical labels Harmonia Mundi, Allegro, and Qualiton hit the industry, the giant record retailer has worked to streamline its operation and fend off threats of bankruptcy.

Though Tower lifted the freeze only a few days after the call was issued, it came with a request for 180-day dating (up from the traditional 60 days) to help the company alleviate its own financial crisis. Tower’s third quarter financial statement filed with the SEC show net losses of $40,572,000 compared with $3,675,000 the year before. The weight of Tower’s financial trouble was not something the delicate economic worlds of independent record labels were prepared to handle, however. Now, while Tower scrambles to right the ship, the indie labels, representing more than 200 independent classical music labels and thousands of artists, are also trying to catch their balance and face the future with or without their biggest ally in the retail field.


Qualiton

Anita Quittner, vice president of Qualiton, says the Tower freeze came out of the blue. “We didn’t even get a phone call from them. We just sort of heard it through the grapevine from one of the Tower buyers that there was a freeze on Qualiton product.” When the call did come two days later asking for 180-day dating, Qualiton wasn’t willing to jump back on board and was in fact still negotiating over payment and what stores will receive Qualiton products in mid-August.

“I don’t even think that Tower thinks everything will just go back to the way it was,” Quittner acknowledges, “so we’re trying to work out something that will be beneficial for them and for us. But nothing is worked out 100 percent yet.”

At this point, though, she is pretty confident a deal will be reached. “I think we’re pretty close at this point so I’m really hoping that within the next month we’ll be able to reach some sort of an agreement. We’re much closer than we were say two weeks ago, but we’re not there yet.”


Harmonia Mundi

“The Tower situation, as it’s called, was inevitable,” explains Harmonia Mundi President Rene Goiffon. “It could have happened any time before. It’s the illustration of the fact that collectively we’ve all been doing the wrong thing over the past few years. There are too many classical CDs out there and as long as we had Tower and a few other retailers like Tower, we all lived under illusion that there was a market for all of those CDs. The Tower crisis made us all aware that that was not the case. So that’s the bad news.”

Goiffon isn’t preaching doom and gloom for the classical recording industry yet, however. “The good news is that there are still people interested in buying classical CDs. There’s still a market.” But that market, he feels, revolves mainly around artists who are active performers. CDs released by touring artists will sell and do well. “The big change is that the so-called back catalog of so many classical labels is just completely dead. You should just forget about it. There’s nothing we can do as a distributor. The future is with performers who are performing.”

Harmonia Mundi negotiated a new agreement with Tower in July and Goiffon speaks confidently about the future with or without Tower. “Tower was the only recipient for those huge [back] catalogs, so that’s gone. Otherwise as long as we concentrate on touring artists then Tower is not the only option in terms of retailers. We can sell to Barnes and Noble, we can sell to Borders, Virgin, HMV, and so on. Tower was between 20 and 25 percent of our business. Now it’s still going to be a major partner, but Tower is only a trading partner among others.”

In addition to the traditional record retailers, Qualiton has also “started looking into alternate markets and that type of thing,” Quittner explains, citing the company’s development of nontraditional outlets such as retail clothing and jewelry stores. “We started to do that even before this happened. Maybe we’re doing it with a renewed vigor, but that’s really about it.” Sounding less confident than Goiffon, Quittner points out that “unfortunately the market is pretty bad all over, with or without Tower.”

Though it seems like an ideal time for another retailer to pick up the slack created by Tower, Quittner hasn’t seen any hint of that happening yet. “It seems to me that they’re sort of missing an opportunity….We’ve had a lot of private customers actually coming to our offices and warehouse because they can’t find it at Tower, but that says to me that they also can’t find it at HMV or J&R or any of the other stores, so it doesn’t seem to me that these stores are taking advantage of what seems like a very lucrative opportunity.”