Chicken Little has been crying that the sky is falling on the recording industry for quite some time now. Sure, sales have flagged a bit from their 1999 peak of $14 billion (also known as the “Year of Napster”), but the biz still rakes in better than $10 billion annually in the U.S. alone, and as anybody in business will tell you, that ain’t chicken feed.

Interestingly enough, the largest drop in record sales has been in new releases, while catalog and “deep catalog” (i.e. titles over three years old) sales remain fairly consistent and represent fully half of the industry’s sales total each year. Nielsen Soundscan reports that during 2000, the top ten best-selling releases of the year sold a whopping 60 million copies total; in 2006, the top ten sold “only” 25 million CDs. This is a result of more than mere musical trends. This means that the consumer isn’t buying the new artists the industry is currently hyping, and that the Beatles, Pink Floyd, Led Zeppelin, Black Sabbath, Elvis and even Metallica continue to pay the freight for every shitty little trend that the biz tries (unsuccessfully) to cram down our throats.

A recent report in the Silicon Alley Insider, a digital business newsletter, suggests that the recording industry’s woes are far from over. Analysts are projecting that in 2008, the big three music retailers – Wal-Mart, Target and Best Buy – will be cutting back on their music inventories after the 2007 holiday season, reducing the amount of floorspace they dedicated to compact discs. According to a June 2 report in Rolling Stone magazine, the “big box” stores account for nearly two-thirds of U.S. CD sales, so the projected 20% to 40% decreases in store inventories will significantly reduce the choice of titles available to consumers. One note in the story states that Circuit City, Target and Wal-Mart had already made large cuts in their music inventories over the past couple of years, cuts barely offset by Best Buy’s increase in their music inventory (what BB stores are they visiting?).

In my opinion, the analysts are waaayyyy off base with their projections. Yeah, the Reverend thinks that CD sales next year will continue to stink up the joint, but not for the reasons that most industry “observers” believe. Citing that the aforementioned retailers have concluded that CD sales are in “permanent decline,” the Silicon Alley Insider article does the math and assumes roughly a 14% decrease in CD sales for 2008, which should be about the same as the drop this year. However, most of these “big box” retailers, and especially Wal-Mart, carry a very narrow music inventory, consisting primarily of the top 200 best-selling titles at any given time (a distinction that they track fanatically) along with a smattering of in-demand catalog titles.

It’s my guess that most of the inventory that Wal-Mart, K-Mart and Target (and, to a lesser extent Circuit City and Best Buy) will cut from their shelves will consist of album titles in the lower-fifty of the top 200 current releases and up to half of their catalog titles. If their back catalog represents almost half of the recording industry’s annual U.S. sales tally, and if the Big Box stores “disappear” a large percentage of their catalog inventory, a little basic cipherin’ will provide an answer that the biz just doesn’t want to face. CD sales losses in 2008 will disproportionately consist of profitable catalog and deep-catalog titles, and I’d wager a guess that the crowd that shops the marts largely picks up older CDs on a whim, an immediate impulse buy that won’t result in them cruising to Amazon.com to buy the CD later, when they get home.

Of course, the industry could make some changes that help them re-capture this much-needed retail shelf space. Wal-Mart, for one, has demanded $10 price-point CDs for a couple of years now, and the labels could finally acquiesce and provide the Big Box retailers with deeper discounts and larger incentives (free goods, advertising co-op, exclusive titles). This strategy would hurt the artists in the short run (since most label contracts don’t pay royalties on discounted goods) and would screw over the independent retailer royally, but it might buy a short reprieve for the “Four Families.” The labels could also choose to put their eggs in the long-neglected “record store” basket and put more product, at a cheaper wholesale price, into the hands of traditional chain stores and independent music retailers. Unfortunately, methinks that nothing the labels conceive of at this late date will slow the digital steamroller.

The Reverend will out on a limb here and predict that overall music sales for 2008 will drop by 20% to 25% in the United States, putting the recording industry into a destructive spiral that will result in label bankruptcies, mergers and consumer lawsuits. A drop in sales this large will virtually destroy the major label landscape as we know it, resulting in tens of thousands of lost jobs (hint: start at the top, boy-O), hundreds of bands being dropped, and maybe even a major-scale merger between the two biggest losers. A drop in sales this large will put the industry back where it was in the late-70s in terms of size and importance in the world of media.

Maybe Chicken Little has been right all along. I’d like to think that an industry Armageddon would be a positive occurrence for music in the long run. The major labels (and, to a lesser extent, the medium labels) got themselves into this mess in the first place. Mesmerized by the potential sales volume available in the Big Box stores, they turned their back on traditional music retailers. Their greed caught up with them as they got addicted to big sales and the Big Boxes, turning the screws, demanded more and bigger concessions from the industry. In many ways, the labels got what they deserved.

A total industry meltdown – which some cynics have bleated about since 2001 – would result in a more level playing field for smaller, independent labels. A new music paradigm might emerge as creative, intelligent and fast-thinking entrepeneurs took charge and learned how to incorporate the digital genie into their business plan. One thing is for sure, however…as long as man walks this planet, music (and musicians) will continue to exist. Everything else is up to the suits….