The Consumerist, a website published by the parent of Consumer Reports, has a potential lead on an alleged development at Borders Group (NYSE: BGP). Forgive all the wishy-washy verbiage; nothing is confirmed yet. An individual identifying him/herself as a Borders employee informed the website that the chain is severely paring down its CD and DVD sections, leaving only top sellers and reducing the prices of those.

Said alleged employee also encourages shoppers to wait for deep-discount sales of remaining digital inventory in the coming weeks.

On one hand (or on many hands), this makes sense. The advent of MP3 technology, Amazon.com (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and file-sharing services have seen bigger and better CD/DVD outlets (e.g. Tower Records - SOB!) go belly up, so why wouldn't Borders focus all of its energy on its more popular books line?

Industrial progressive rock band Nine Inch Nails' most recent album The Slip will be available in physical formats on July 22, Billboard reported Wednesday. First reported on May 5, the album is the band's third album in a little over a year and the second since leaving music company Universal Music Group. Unlike other physical releases though, a CD version will be limited to 200,000 copies in the United States, Canada and Japan, while a later vinyl version will be unlimited. Band leader Trent Reznor also told Billboard the album "will remain free to download 'indefinitely' from the band's site."

The availability of a vinyl copy of The Slip versus that of the CD version mirrors similar sentiments that I commented about yesterday. Music company EMI packaged the vinyl version of Coldplay's Viva la Vida or Death and All His Friends with a CD version, indicating that despite vinyl's allure, the industry is aware that listeners want versions that can be transferred to portable devices.

NIN leader Trent Reznor was obviously aware of this desire from his fans, since the album will feature an unlimited release for the vinyl version. It could also indicate his own preference, which would not be surprising. Either way, when The Slip is released physically, consumers and listeners will still have the option to download the album for free if they decide to buy a physical copy, whether it's the limited CD or the unlimited vinyl. Numerous formats may seem tedious, but if the experience is part of the joy of listening to music then it is being accommodated.

On the new personal finance site we're about to launch, I'm contemplating doing a series called "Why Would Anyone Buy That" as a special weekly place to highlight all those consumer products that people buy and I don't understand why.

A soundtrack to The Weather Channel would seem like a pretty good place to start. Weather Channel Presents: Best of Smooth Jazz, released in October, seems like a sure candidate for the discount rack. But, actually, the eight Amazon.com customers who have reviewed it have generally been kind, giving it an average of 4.5 out of 5 stars.

According to the Associated Press, "The songs are among the channel's most requested selections and play during the forecast fixture 'Local on the 8s' that airs six times an hour. It's the cue that draws you to the TV set when you want to find out if you should take along that jacket when you leave home."

I can't imagine buying a CD with "The Weather Channel" in the title: It seems like an invitation to mockery: Possibly even lower than Kenny G and Michael Bolton. But regardless of what I think, you have to hand it to The Weather Channel's marketing people. Who ever would have thought that a station that provides 24-hour coverage of the weather, hardly a scintillating topic to most people, would build a strong enough brand that it can be used to sell CDs.

I can think of a few companies that are struggling to capitalize on their brands that could use some of The Weather Channel's marketing savvy.

There's an old saying about getting into a fight with a lady: "If you lose you lose, and if you win you lose."

Well, the Recording Industry Association of America (RIAA) has won a battle with a 30-year old single mother from Minnesota. A federal jury ordered the woman the woman to pay $222,000 in damages for sharing 24 songs on online file-sharing platform Kazaa -- That's $9,250 per song.

"She was in tears. She's devastated," the woman's attorney attorney, Brian Toder, told The Associated Press. "This is a girl that lives from paycheck to paycheck, and now all of a sudden she could get a quarter of her paycheck garnished for the rest of her life."

The actual judgment could come in closer to half a million dollars, because she will also have to pay the RIAA's attorney's fees.

While this is an important symbolic victory for the industry, you have to hope that they will let this poor woman off the hook. In addition to its financial struggles, the industry is also reeling from angry consumers and upset artists. Demonstrating some compassion toward a single mother could go a long way towards building some goodwill.

But if the industry does decide to play hardball with this woman, they may find out that, in the long run, this victory is actually a major loss.

James Blunt scored a huge hit in 2005 with "You're Beautiful" and now he's back with his new CD: All the Lost Souls, with a marketing twist.

Warner Music (NYSE: WMG) will be offering the CD on MySpace for $9.99. They will be able to download the tracks to their iPods instantly, and also receive the CD in the mail. That sounds like a pretty good deal!

According to The Financial Times, "Mr Blunt... boasts more than 250,000 MySpace friends. Warner will attempt to piggyback on that popularity by embedding a widget on Mr Blunt's fan page powered by a technology partner, LaLa.com. The companies hope consumers will be drawn in by a seamless experience in which they can listen to an album for free as many times as they like or purchase it without ever leaving a single webpage."

This sounds like a good way for the record labels to bypass middlemen like iTunes but, at $9.99 for the downloads and the physical CD, the margins here look pretty weak. I wonder whether they would experience much of a drop-off in sales if they did away with the "CD by mail" component. How many of Mr. Blunt's fans really want CDs anyway?

But downloading, legal and illegal, has put the record industry in a tough place. If it is to survive and prosper, it will need to continue to try innovative new marketing techniques like this one.

Billboard reports today that Nine Inch Nails frontman Trent Reznor has urged Australian and Chinese fans to steal his music, due to the high cost of obtaining the band's newest album in those regions. Apparently, the Year Zero album costs the equivalent of $30 in Australia. Reznor urges fans to buy internet downloads and simply share them among friends.

This is not the first report about the feelings Reznor has had about his record label, Universal Music Group, and the pricing of Year Zero in Australia, but it is the first instance of the artist urging fans to illegally obtain the album. Incidentally, Reznor is not the first artist to advocate the piracy of music. Undoubtedly, Universal is unhappy about the situation, but Billboard does not offer any counterpoint. Late last month, Universal and NBC pulled their television shows from Apple's (NASDAQ: AAPL) iTunes Store because negotiations about pricing fell through. Universal Music's negotiations with iTunes fell apart in July, without the renewal of a one-year contract and the introduction of ad hoc availability for UMG music.

The Reznor/NIN situation highlights that the perceptions that record labels can successfully dictate prices are entirely accurate. The key word is successfully there, so keep that in mind, because Reznor may be an isolated case, but you can be sure that he is not. At the same time that Universal is struggling to control prices, iTunes apparent low prices are coming under attack by new digital stores like the one from Wal-Mart (NYSE: WMT), which beats iTunes by about $.11 on single track downloads. Just imagine what might happen when the new Amazon.com (NASDAQ: AMZN) digital store becomes operational later in the year...

Countrywide Financial Corp (NYSE: CFC) September volatility at 116 prior to BAC preferred stock purchase.

CFC, a U.S. home mortgage lender, is recently trading at $25.85 in pre-open trading, above its close of $21.82 yesterday. Bank of America (NYSE: BAC) purchased $2 billion of preferred stock from CFC. Goldman Sachs says this is "a vote of confidence from BAC, but earnings prospects unchanged." CFC September option implied volatility of 116 is above its 26-week average of 59 according to Track Data, indicating larger price fluctuations.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

More Countrywide Financial news

Peter Cohan: Is Bank of America's (BAC) purchase of Countrwide Financial (CFC) a good bet?
Georges Yared: Bank of America (BAC) makes strategic investment in Countrywide Financial (CFC)
Douglas McIntyre: Will Berkshire Hathaway (BRK) buy parts of Countrywide Financial (CFC)?
Douglas McIntyre: New lay-offs signal Countrywide (CFC) is not out of the woods
Peter Cohan: What the mortgage meltdown means to you
Eric Buscemi: George Bailey, meet Angelo Mozilo
Peter Cohan: Countrywide (CFC) meltdown continues
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?

Digital music sales increased 49 percent for the first 6 months of 2007 as sales of conventional albums continued their free fall, dropping 15% year over year. According to the Associated Press, "The trend away from albums and toward digital tracks has been going on for a few years, with industry insiders saying it is fueled by pop music's emphasis on hit singles. Consumers simply buy the songs they want and skip the albums."

There is essentially one pure play on digital music download sales: Napster (NASDAQ: NAPS), the name that started it all. If you want to bet on a recovery in brick-and-mortar music sales, you can choose Handleman (NASDAQ: HDL) or Transworld Entertainment (NASDAQ: TWMC).

Obviously the sales trends favor Napster more than Handleman but remember, markets are a discounting mechanism. Shares of HDL and TWMC are scraping all-time lows, and trading at substantial discounts to their respective book values. Of course that alone does not make these stocks buys, as their fundamentals seem destined to continue to deteriorate. The question investors have to ask is "Is the worst over?" Similarly, Napster shareholders have to wonder "When will the growth slow?"

The latest sales numbers are extreme. Is a 49% increase in digital music sales sustainable? No way. Will sales of CDs continue to decline 15% a year until they reach 0? That is a matter of some debate, and it's entirely possible that companies like Handleman and Transworld won't exist in 10 years, and will continue to bleed red ink until that happens. That's not a stock that I want to own. But I also wouldn't want to own shares of Napster which continues to lose money in spite of rapid growth in the industry.

There's no question that the music industry is in the midst of huge changes, but I can't find a stock that makes me want to get involved.

Apple (NASDAQ: AAPL) has passed Amazon.com (NASDAQ: AMZN) to become the third largest music seller in the United States, accounting for 10% of all music sold. Apple trails only Wal-Mart (NYSE: WMT) and Best Buy (NYSE: BBY) in the category, and is by the far the largest seller of non-CD music.

Obviously this makes Apple one of the great crossover stories in recent memory: Until the iPod launched in October of 2001, Apple's stock was languishing in the mid to high single digits -- roughly the same place it had been in 1990. As anyone who's owned Apple for the ride up like my colleague Georges Yared knows, Apple's been top-performer since then, recently closing at $123 per share.

But here's the thing to keep in mind: The success of Apple is a great story, but it's also the exception. Most of the time when companies try to expand into new products and new businesses, they fail miserably. For every iPod, there are ten companies who try and fail to expand -- like Coca Cola's (NYSE: KO) shrimp farms and Pat Boone's heavy metal album.

So keep that in mind when you're looking at companies trying to break into new markets and different businesses. Just because Apple had success with the iPod doesn't mean that Crocs (NASDAQ: CROX) will be able to make it with high-fashion boots.

Apple Inc. (NASDAQ: AAPL) is now the third largest music retailer in the U.S., according to a study by research firm NPD. iTunes now has a market share of 9.8% in the sales of albums. NPD defines "every 12 tracks purchased online as equivalent to an album in compact disc format" for the purpose of measuring online sales.

Target Corp. (NYSE: TGT) has now moved behind Apple in market share, and has only 6.6% of the market. Wal-Mart Stores Inc. (NYSE: WMT) is still the leader at 15.8% followed by Best Buy Co. (NYSE: BBY) at 13.8%.

But the retailers are likely to lose their positions to Apple soon, and the days where CD sales made up any significant part of their sales are coming to an end. Research operation SoundScan shows CD sales off 16% this year while digital sales are up 49%.

With same-store sales at multi-year lows, Wal-Mart and its competitors can hardly use one more headache. But, they have gotten one anyway.

Douglas A. McIntyre is a partner at 24/7 Wall St.

With EMI Group PLC (LSE: EMI)'s announcement Friday that its new Digital Rights Management technology-free tracks now available for sale on Apple Inc. (NASDAQ: AAPL)'s iTunes Store are performing well, will the compact disc finally go to the grave, as has been speculated for the past few years? Coolfer, a music industry site, notes that this may be one explanation, but can this truly be the case? Certainly the quick growth of DRM-free tracks is impressive, but is it long-term or simply a new service that consumers have embraced quickly and will cool?

For this listener, the differences in DRM-free tracks, "regular" iTunes tracks, and CD tracks are indiscernible, so the advantages between $1.29 iTunes Plus tracks versus CDs are nil. It is my belief, and this is strictly from someone who cannot let go of physical albums, that the curiosity with DRM-tracks has led to slight CD sales drops for specific EMI albums but these will not be permanent. After all, this new service is just another in a long line of "new services" that has challenged CD sales, and the CD is still with us. No, it is not in the same position it may have been 10 to 12 years ago, but it refused to die, or rather we refuse to truly kill it.

I am of the opinion that digital sales will eventually destroy prominent CD sales, but as long as the audio CD is manufactured, someone will purchase it. Even so, the CD as a tool, not simply as a device to hold music, will survive. After all, it is not always advantageous or simple to play music in a car from an iPod or other mp3 device. The transmitters to transfer the iPod signal to car radios exist, but the CD player still often comes "standard" in so many cars (I have a base-model car and it came with a CD player, so I'm using that as my example).

Eight days ago, Starbucks (NASDAQ: SBUX) began selling the new CD from former Beatle Paul McCartney titled Memory Almost Full. Currently, the CD is only available from Starbucks stores in all 27 countries and on Amazon.com (NASDAQ: AMZN). The CD may be the spark that Starbucks needs to get its stock going, as it is selling extraordinarily well and may lift Starbucks' June same-store sales.

Starbucks is a long-term, excellent growth story. The company currently operates almost 12,000 stores, with a stated corporate goal of growing to over 40,000 units in the next decade. This year so far has been a frustrating one for Starbucks as its stock has traded as high as $36, but is sitting at its low point right now at $27.74.

Update June 13, 2007, 4:36 p.m.: "First-week sales of 160,541 copies marked a 33% improvement over those for Flaming Pie."

The first quarter earnings for Starbucks came in right at consensus expectations: no upside surprise. The market reacted with a rather large yawn and the stock has been trading sideways since. The Paul McCartney CD may be the catalyst necessary to get the stock and the same store sales popping in sync.

Last year longtime entertainment retailer Tower Records filed for Chapter 11 bankruptcy and closed down. Following the filing, the company and all its assets were purchased by Great American Group, which began liquidation of products and the stores promptly and quickly. By December, Tower Records was no more than a legacy. The website for the chain, Tower.com, was sold in a separate auction, with the winning bidder Caiman, Inc., vowing to keep that aspect of the company alive and make it thrive before resurrecting the stores in limited venues across the country.

This past week, two announcements have been made to the effect of keeping Tower Records alive. The first was Caiman, Inc.'s announcement that Tower.com was up and running. The next was Russ Solomon's intention to open a new store almost exactly the same as Tower in all but name. Solomon founded Tower Records 66 years ago and as soon as next weekend will open a new store in Sacramento, California: R5 Records and Video. Hoping to fill the "instant gratification" that comes with purchasing a record in a store versus online (retailer or digital), Solomon has no fears about the state of the music industry or how low CD sales have slipped this year.

In this time of uncertainty about the direction the music industry may go, it is nice to see that one of the best retailers will return in some form. I have never lived close to a Tower Records or a Virgin Megastore, but visiting a large city and having the "privilege" of shopping at one of those types was always nice. Even though a chain like Best Buy Co. (NYSE: BBY) offers a large selection, there is still the allure and legacy that a historic chain like Tower Records can invoke. The atmosphere inside the stores sold music, and although that aspect of consumerism is dying fast, it made music retailers distinct from the atmosphere where "everything" is sold.

According to Billboard, the Recording Industry Association of America is pushing the major labels to "discuss whether a new physical format is needed as an alternative to the CD." Although the RIAA is attempting to make sure that any new format is shared among the labels, I can't help but wonder what the point is.

I've repeatedly noted the demise of the CD and the growth of digital sales in the three months I have blogged here. Frankly, I don't think the RIAA has the labels' best interest in mind by pursuing a new format to replace the CD. That format clearly already exists in digital downloads. Why not seriously re-invest in the CD as a marketable format, rather than seeking yet another competing format?

Remember when the CD came out? People cried out about the death of vinyl. They've been crying about the death of the CD for a while now (I'm in that group), but let's face it: Digital formats are here to stay. The MP3 and other media files that can be played on pocket devices like Apple Inc.'s (NASDAQ: AAPL) iPod and cell phones are easy to access, and though the transition from CD to digital file is slower than the switch from vinyl to CD was, it is still occurring (imagine what the iPhone may do to this situation). None of this counts to satellite radio subscribers who need neither a CD nor a portable player because their radio receiver is portable (this may be a generalization -- the few people I know that have XM or Sirius have stopped purchasing CDs and don't own MP3 players).

If the RIAA is worried about the compact disc, a new physical format is not the answer. Any new format will face the same competition with digital files that the CD is facing now. Either re-invest and change the CD or make the transition to digital files smoother.

I've always thought Wal-Mart (NYSE: WMT) was a master of merchandising, but this seems pretty bonehead. According to the Wall Street Journal, Wal-Mart embarked on a plan to sell Yiddish music CDs last year and, miracle of miracle, wonder of wonders, they didn't sell.

"Within months of shipping thousands of CDs to Wal-Mart, the classical music distributor's loading docks were swamped with unsold copies of "Klezmer Concertos & Encores" and "Great Songs of the Yiddish Stage," according to the article. Since they hadn't sold quickly enough to meet the retailing giant's standards, 80% of the CDs Naxos shipped to Wal-Mart were returned. Record stores typically return only 20%."

OK then. Something tells me that any 8-year old could have told you that "Great Songs of the Yiddish Stage" wasn't going to be a big hit at Wal-Mart.

But it isn't just obscure titles that are having trouble at the big-box stores. Stores like Wal-Mart, Target, and Best Buy account for over 65% of U.S. music sales (including downloads), and they are cutting back on the floorspace alloted to music. CD sales have plunged another 20% so far this year.

Want a contrarian stock pick on this trend? Handleman Co. (NYSE: HDL) manages the music departments for numerous Wal-Mart locations. As you can imagine, owning shares has been a doozie for the past few years. But with the stock currently trading at a 50% discount to its book value, is all the bad news already priced in?