Disney's Wish Upon a CD

Its music label is offering a new gadget called CDVU+ with loads of interactive features. But can it draw buyers while CD sales continue to fall?

Compact disc sales are plummeting, but Disney (DIS) is making what may be a last-ditch effort to buck the trend. Disney's Hollywood Records label introduced a version of CDs, dubbed CDVU+ (pronounced "CD view plus"), that include such interactive features as videos and high-resolution photos embedded in a digital magazine format. "We don't think the CD is dead," Hollywood Records General Manager Abbey Konowitch said at a press event July 18. "We decided to enhance the consumer experience rather than run from the format."

Many consumers are doing just that. In the first six months of 2007, CD sales dropped 19.3% to 205.7 million from a year earlier, according to Nielsen SoundScan, while digital album sales from such stores as Apple's (AAPL) iTunes and RealNetworks' (RNWS) Rhapsody, jumped 60% to 23.5 million.

Executives at Hollywood Records, which represents artists as Hilary Duff and Jesse McCartney, view those numbers through a glass-is-half-full lens. That about 90 % of albums are still sold as CDs is a good-enough reason to invest in the format, Konowitch and colleagues reckon. And though the technology behind CDVU+ is not new—artists frequently include special features on standard CDs—Hollywood Records will use CDVU to include a higher degree of content fans can't get elsewhere.

Holiday Hopes

The first CDVU+ release will be the upcoming album by tweenie bopper band The Jonas Brothers, in stores on Aug. 7. The Jonas Brothers have a big following on the Internet and among younger audiences—so the band is considered a good test case for CDVU. "We're confident it's going to be a very robust seller for the holiday season," Hollywood Records Senior Vice President of Marketing Ken Bunt said. He declined to make a sales forecast.

Dress up CDs all you want, but you won't be able to reverse the CD sales trend, says Forrester Research (FORR) analyst James McQuivey. "We are very far away from being able to persuade people to go back to CD," he says. John Barrett, director of research at consumer researcher Parks Associates, adds that a limited number of consumers will really take advantage of the added content. "It's all a way to tip the scales in your direction, but there's probably only so many artists that people want to watch that stuff for," he said. "Your mother is not going to take a CD home and pop into a computer and watch the music video."

What's a record label to do? McQuivey says fans want the extra content, and they want it online. Companies can get it out there without giving away the store, he says, by weaving it into widgets, those small, transferable software applications that can be embedded in Web sites like Facebook and News Corp's (NWS) MySpace (see BusinessWeek.com, 7/23/07, "The Next Small Thing"). Labels can use widgets to generate ad revenue, keep tabs on fans' Web behavior, or goose sales of digital records—strategies likely to prove more valuable than CD sales in the long run.

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