Almighty Press

October 14, 2006
Small labels lose valuable ally in Tower

By Dale Kasler - Bee Staff Writer

Marty DeAnda, owner of the independent record label DIG Music, said he's saddened by Tower's demise. He said 35 percent of DIG's revenue has come from Tower. Unlike many big-box merchants, Tower has always stocked music by DIG's roster of singer- songwriters and musicians. Sacramento Bee/Anne Chadwick Williams

Marty DeAnda, owner of a small record label in Sacramento called DIG Music, isn't sure where he'd be without Tower Records. He's about to find out.

DeAnda said 35 percent of DIG's revenue has come from Tower. Unlike many record chains or big-box merchants, Tower has always stocked music by DIG's eclectic roster of singer-songwriters and Americana musicians. DeAnda said Tower was largely responsible for launching the career of Sacramento's Jackie Greene, the roots-rocker who has earned a national reputation.

"Tower Records was a huge supporter of the artists we represent," DeAnda said. "This is obviously a sad time and a time of worry for me. ... We're losing a friend here."

As the liquidation of Tower's 89 stores goes into full swing, hundreds of small record labels and independent distributors have gone into mourning.

Representing lesser-known acts, operating far from the spotlight, they often have had to scramble for shelf space wherever music is sold. And in an industry humbled by stagnant sales and massive store closures, they have looked to Tower as the last "real" record store -- a nationwide chain that behaved like a mom and pop, going well beyond the hot hits and selling an unusually broad selection of music.

"It's not like a lot of other chains, which were not supportive of roots music and hard-to-find things," said Ken Irwin, co-owner of Rounder Records Corp., an independent label in Cambridge, Mass., whose musicians range from jazz saxophonist Branford Marsalis to blues-rocker George Thorogood.

The plight of the independents is one example of how the Tower liquidation has ramifications far beyond the legendary retailer's West Sacramento headquarters. It also illustrates the stark divide between the independents and major record companies like Warner Music Group, Universal Music Group and others.

With their size and heft, the major labels have an easier time getting their products stocked at retail. They also are better insulated from the financial fallout of Tower's collapse.

After Tower's first bankruptcy protection case, in 2004, the big labels insisted on being treated as secured creditors, said their attorney Michael Bloom. That gave them a measure of insurance as they sold CDs and DVDs to Tower on credit. When Tower filed for bankruptcy protection a second time, on Aug. 20, they were second in line to get paid, behind Tower's banks.

Tower was sold for about $155 million at the historic Oct. 6 bankruptcy auction in Wilmington, Del., and the first $85 million will go to the banks. The record companies, owed a collective $82 million, will take the rest. That's not enough to reimburse them completely -- Bloom wouldn't comment on how the major labels will fare -- but they've emerged from the bankruptcy in far better shape than the independents.

As unsecured creditors, the independents will walk away with nothing from Tower. They are collectively owed about $15 million, according to court records, and the losses represent significant hardships for some.

"That could shut some doors," said Joel Oberstein, president of a consulting firm called the Almighty Institute of Music Retail. "It's part of the trickle-down that people just don't think about."

For instance, Select-O-Hits Inc., an independent distributor based in Memphis, Tenn., stands to lose $524,000, court records show.

"It's not a devastating loss, (but) you never want to lose a half a million dollars, that's for sure," said co-owner John Phillips, a nephew of legendary record producer Sam Phillips. Select-O-Hits distributes music by Jimmy Buffett, Johnny Cash and Jerry Lee Lewis, among others.

Phillips noted that he and others also got beat up financially by the bankruptcy earlier this year of Musicland Holdings, which owned the Sam Goody chain. "This has been a bad year for independents," he said.

Beyond the financial hit, the independents are scrambling to replace lost opportunities. Tower wasn't merely generous with shelf space, Phillips said. It was far more accommodating than most in selling space to independents on its "listening stations," the kiosks that allow customers to preview CDs, he said.

And Tower recently had agreed to sponsor in-store concert appearances around the country for a Select-O-Hits rock musician who goes by the name of Goat. Select-O-Hits pulled the plug on the tour when Tower's financial crisis heated up in August, Phillips said.

Consultant Oberstein said independents probably will work to strengthen relationships with the 2,500 or so remaining independent music retailers. It's also likely that small labels will push harder to distribute their music through Internet downloading -- although about 90 percent of music is still sold at retail.

But as far as big national record chains, Tower's exit leaves only one company to speak of, the 1,100-store Trans World Entertainment Corp.

Trans World's stores include FYE and Wherehouse.

Christopher Knab, a Seattle consultant to independent labels, said Trans World focuses mainly on current hits and doesn't cater much to the independents, the way Tower did. Trans World tried to buy Tower at the bankruptcy auction and says it would have kept about two-thirds of its stores open. It was outbid by liquidator Great American Group.

"Tower is ... the last real chain," said Knab, a co-founder of the old 415 Records label in San Francisco. "If Tower Records would take your stuff and it sold, it was symbolic that this was a label that had good product. It opened the door to other stores and other chains and distributors."

In recent years, as its finances deteriorated, Tower scaled back on some of its more obscure musical offerings, which tended to sell more slowly. Though it remained a favorite among independents, executives at some labels had begun preparing for the possibility of a Tower shutdown.

DIG Music already had begun diversifying. It started offering musicians management and promotion services, such as designing press kits, business plans and CD cover art. The Sacramento company signed a distribution contract with an affiliate of Warner Music. DeAnda remains Greene's personal manager, although the rocker has signed with a major record label.

An unsecured creditor like the other independents, DIG will lose some money because of the bankruptcy, although DeAnda wouldn't say how much.

"Cash flow's going to be impacted for a bit," DeAnda said. But he said his 6-year-old company will ride it out.

"We'll have to become more savvy," DeAnda said.

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