MUSIC SALES SCALE BACK; INDUSTRY REPORTS FLAT TREND FOR FIRST HALF OF THIS YEAR.

Byline: Dave McNary Staff Writer

The nation's music industry hit a flat note in the first half of the year with shipments sliding 0.3 percent to 501 million units while sales edged up 1.8 percent to $5.95 billion, a trade group reported Friday.

The no-growth trend, disclosed by the Recording Industry Association of America, stemmed from consolidation among retailers, an exceptionally high return rate of 8 percent and plunging sales in a pair of old-line categories - cassettes and music videos.

But RIAA officials said they are not worried about the tepid performance and pointed to the 6.9 percent jump in compact disc shipments along with a 6 percent rise in sales to $5.17 billion - 85 percent of all revenues.

``When you look at the core of the business, which is now CDs, we're at a very healthy growth rate,'' said Tim Sites, the trade group's senior vice president of marketing. ``That's the news here. We're seeing a very efficient distribution pipeline at work.''

Hilary Rosen, RIAA president and chief executive officer, noted in a statement that significant numbers of fourth-quarter seasonal releases drove the higher-than-usual rate of returns during the first half of the year. ``The industry is also feeling the ripple effect of consolidations amongst the largest retailers and, subsequently, more conservative buying on the part of these retailers as they assess their inventory,'' she said.

Although the survey did not break out performance by genre, Sites noted that three areas continued to generate strong first-half results - Christian-gospel, rap and ``boy bands'' such as 'N Sync and the Backstreet Boys.

Cassette shipments dropped 17.9 percent to 56.3 million units, and sales dropped 21.8 percent to $616.4 million. The separate category of cassette singles nearly vanished, with shipments falling 47.9 percent to 8.8 million units and sales down 51.9 percent to $30.3 million.

CD singles dropped 12.9 percent to 29.8 million units and fell 6.7 percent in sales to $120.4 million. ``Record companies continue to assess how to strategically utilize the configuration,'' the RIAA noted.

Music videos also posted impressive declines, falling 35.1 percent to 4.8 million units and 26.1 percent in sales to $96.3 million. However, DVD music videos began picking up strength as shipments rose 520 percent to 800,000 units, and sales jumped 623 percent to $23.1 million.

``We are seeing a thirst in the marketplace for new technology,'' Sites said of the explosive gains in the 17-month-old DVD format.

DVD sales approached those of the once-dominant vinyl format. Vinyl album shipments fell 7.9 percent to 1.4 million, and sales declined 12.6 percent to $14 million; vinyl singles fell 6.6 percent to 2.8 million as sales rose 3.8 percent to $14.8 million.

The survey did not track sales of music downloaded from online sites. A previous RIAA telephone survey showed 9 percent of all music purchasers had bought music from the Internet this year, and that 18 percent plan to do so in the future.

Sites said second-half sales, when the industry usually racks up 60 percent of its annual revenues, appear to be on track to top last year's performance. He cited high expectations for albums from Toni Braxton, Puff Daddy, 'N Synch and Sting.

SHIPMENT DIP

Domestic music shipments slid 0.3 percent in the first half of 1999

Type Jan-June '98x Jan-June '99x Pct. change

Compact Disc 370.6 396.2 +6.9

CD single 34.2 29.8 +12.9

Cassette 68.6 56.3 -17.9

Cassette single17 8.8 -47.9

Music video 7.5 4.8 -35.1

DVD video 0.1 0.8 +520.4

Vinyl LP/EP 1.6 1.4 -7.9

Vinyl single 3 2.8 -6.6

Total 502.5 501 -0.3

x In millions

SOURCE: Recording Industry Association of America

CAPTION(S):

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Box: SHIPMENT DIP (See text)