Immigration raids hurt Latin music in 2009

Fri Dec 18, 2009 6:40pm EST

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MIAMI (Billboard) - This fall, George Lopez became the first Latin comedian to host his own late-night talk show on an English-language channel. Last summer, the Spanish-peppered "In the Heights," with its merengue/salsa/bachata score, won a Tony Award for best musical. And Shakira, a Colombian, has a hit on the Billboard 200 with her new album, "She Wolf."

And yet, despite the mainstream attention, Latin music, which a mere three years ago stood as a lone example of success amid declining sales, is enduring its worst downturn in recent memory. As a result, labels and artists are struggling to adapt to a new marketplace where CD sales are no longer the measure of success, revenue-sharing deals are the norm, and every penny counts.

For the week ended November 22, sales of Latin music albums in the United States stood at 14.7 million units, according to Nielsen SoundScan, a precipitous 35 percent decline compared with the same period the previous year. Even taking into account the expected upcoming surge of holiday sales, it's unlikely that will compensate for the loss, which is markedly higher than the 21 percent decline of Latin music sales posted for year-end 2008 compared with year-end 2007.

Even more alarming than the numbers is the fact that the sales drop accelerated as the year progressed. For first-quarter 2009, sales were down 31.3 percent compared with the year-earlier period, according to Nielsen SoundScan. By midyear, they were down 33 percent, and by the last week of September, they dipped yet again, by 35 percent.

In fact, Latin music's decline outpaces that of the market as a whole, just as the genre's growth in 2005 and 2006 went against the general market's decline.

A HARDER HIT

The reasons for the drop-off cited by numerous executives echo the challenges facing the market as a whole, but their effect is magnified in a Latin marketplace that often occupies a place parallel to the mainstream. Many retailers report that sales of all Latin products -- including books and other non-music-related merchandise -- have suffered. Because so many Latins work in construction and service industries, they may be disproportionately affected by the economic downturn and also by harsher anti-immigration policies.

"Our biggest account is Walmart, and when I speak with Walmart they say there aren't as many people coming into the stores," says Johnny Phillips, vice president of indie distributor Select-O-Hits.

More than the economy, raids aimed at illegal immigrants have been "fatal" for business, the managing director of one Los Angeles-based Latin retailer says. "Ninety percent of our business came from immigrants. That's gone now."

In addition, retail closures are doubly impactful for a consumer base that still overwhelmingly purchases physical, as opposed to digital, product. "The Hispanic distribution network has broken down completely," says Marti Cuevas, general manager of indie Premium Latin. This fall, for example, J&N Distribution, which fed product to dozens of small mom-and-pop stores, shut down, effectively severing a crucial link between consumers and their product.

But "because Hispanic people don't use digital the same way mainstream does," there are still "a lot" of small stores selling Latin music, according to Cuevas. "Many of them don't have computers. We're still dealing with a lot of new immigrants, and yes, they can afford to buy a CD."

Premium, whose roster includes top-selling act Aventura, a bachata group from New York, is addressing the mom-and-pop issue by grabbing the bull by the horns. Beginning in late November, the label began to sell to these small accounts directly, offering the same prices it does mass merchants. Even if the accounts are small, Cuevas says, a sale is still a sale.

Phillips has seen Select-O-Hits' Latin business grow from 15 percent of its total business in 2008 to 30 percent this year -- not with big-selling releases, but with what he calls "niche" titles that may sell 10,000-20,000 units. "And if we have five of those, we suddenly have 100,000 copies," he says.

DIGITAL CHALLENGE

Beyond overcoming the lack of retail outlets, another challenge for Latin labels is revving up a digital marketplace that has consistently refused to come alive.

According to Nielsen SoundScan, for the week ended November 22, sales of Latin digital albums stood at 615,000 units, a negligible rise over the 554,000 reported a year earlier. Although that number represents 4.1 percent of total Latin albums sold -- an increase over the 2.5 percent digital album sales represented in 2008 -- it's still a far cry from the 15 percent that digital album sales represent in the overall album market. And of course, it nowhere near offsets the decline in physical sales.

Still, Fonovisa/Disa president Gustavo Lopez says, "We are really focusing on the online marketing arena. We've been very aggressive about getting artists online, getting their sites up and building and guiding what they're doing."

Although it's hard to quantify the effectiveness of these efforts, digital sales, including mobile, now account for 20 percent of Disa and Fonovisa's net billing, up from just 5 percent last year, and Lopez estimates that percentage will grow to 30 percent in 2010.

And while music sales decline, there have been signs of stability and even growth, particularly in those cases where the focus has shifted from merely moving CDs to a more holistic approach that ranges from so-called 360 deals -- in which recording artists share not just revenue from album sales but concert, merchandise and other earnings with their label in exchange for more comprehensive career support -- to revenue sharing. These approaches encourage labels not only to invest, but also to go out on a limb in search of opportunities.

"Being an indie, and one with 14 people working in the office, allows us to switch lanes when needed without too much trouble," says Tomas Cookman, president/CEO of Nacional Records, which has increased its business every year since its inception in 2004. "Whereas we love to go for sales, we try to take an overall approach to generating revenues."

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