Label execs defend delaying CD releases because it prevents leaks and (some) piracy.

On the eve of the release of Drake’s Scorpion June 29, a bunch of music retailers nervously wondered if the rapper’s album would eventually come out on CD, since his previous LP, More Life, never did.

The merchants were gathered in Florida at the annual convention of Alliance Entertainment, the largest music wholesaler of CDs and vinyl in the U.S. With CD sales accounting for $1.06 billion in sales at retail in the U.S. last year, attendees were at a loss as to why the labels weren't wholeheartedly supporting the CD.

If Scorpion had come out on CD at the same time as it hit streaming services, the merchants speculated it would have sold 250,000 to 300,000 copies its debut week. But if the CD hit stores at a later date, they anticipated first-week sales of between 50,000 to 80,000 copies in the U.S.

Now, after its July 13 release, Drake’s Scorpion CD is selling fewer copies than even they had expected this late in the game: given some shipping delays, industry analysts estimate it will be lucky to sell 50,000 copies its first week in the U.S.

“What Drake is doing is walking up to a table and seeing two bags of money, one with $100,000 on it and one with $500,000 on it and choosing to leave the larger bag of money on the table,” says a music retailer, assuming $2 per CD in royalties.

Label executives defend delaying the CD release because it prevents pre-release leaks and some amount of piracy, though pirates can also rip new music from streaming services in a now common practice known as stream-ripping. In the case of Scorpion, one major-label head said that Drake is likely more interested in the bragging rights of being a top-streamed act than in banking at least half a million more in physical revenue, says one major-label head. (That forgone sum doesn’t include physical revenue Drake passed up by delaying the CD overseas, which is likely significant given the still-strong CD sales in big music markets like Germany and Japan.)

But retailers say that the dwindling support and the decreasing amount of warning and pre-release information they get from major labels about their biggest albums is accelerating a decline in CD shelf space. Best Buy has been withdrawing CDs from about 100 stores and aims to eliminate all its CD departments in August, label sources say, though it will still carry vinyl and budget CDs. Target, meanwhile, without warning labels, recently “decided to implement a policy that if a title didn’t sell 800 pieces of inventory a month across its chain, it got pulled from inventory,” a label exec complains. “I lost records right in the middle of their life.”

CD sales are down 19.9% to 35.9 million in the first 27 weeks of 2018 over the same period last year. Country music is still particularly dependent on CD sales, declines of which could outpace country fans’ slow adoption of streaming, some insiders worry. "It's frustrating to the stores as they have to turn away thousands of customers a week when they have to tell them an album is not available," said Record Store Day co-founder Michael Kurtz, one of the attendees at the convention.

Surprise albums with information embargoes are costing the industry even more, both in lost sales and efforts to chase down data, says Alliance’s marketing director, Jocelyn Pryor.

“Data is the biggest sales factor; it is the key to selling,” she says, noting that big albums are the ones that benefit most from well-executed marketing plans in an increasingly fragmented fan market. “If you don’t have the data on an e-commerce site; or if my sales reps have no information then they can’t sell anything to the retailers. The fact that data is screwed up due to an information embargo is a humongous problem to sales. If the industry doesn’t get away from this practice, this will be the final nail in the physical coffin.”

Pryor adds that while her team used to receive one file per album with all the information, metadata and artwork they would need to market it, “nowadays, every level of the supply chain has to chase for information and marketing assets because of the information embargoes and need to touch titles 5 or 6 times more than we did before when these ridiculous shenanigans began.”

Alliance is the largest music wholesaler with more than $300 million in music sales, selling physical music or providing inventory management for that category to Walmart, Barnes & Noble, Books-A-Millions, and Dillards among others, as well as selling music and providing inventory sales and fulfillment to hundreds of CD websites including Amazon. But the company hasn’t put all of its eggs in the music industry’s basket: it is also a big seller of DVDs and is now making a big play for video gaming, too. Both Hollywood and the gaming industry are a lot more supportive of their physical formats than the music industry, says Alliance chairman Bruce Ogilvie. Game publishers, for example, “are trying to maintain their physical sales and trying to calm retail’s fears so that they don’t lose any more shelf space,” he says, adding he thinks the labels could use their clout with their artists to insist on a CD release. “When record labels executives tell me that they support physical music, I have to call them on that and point out which of their releases that didn’t come out on CD."

This article originally appeared in the July 21 issue of Billboard.