SINGING THE BLUES.

Focuses on the impact of a decline in music sales on the sound recording industry. Sales of CDs fell almost 9 percent in 2002 and are expected to be in 2003 an additional 6 percent. Instead of buying music, fans are flocking to online services like Kazaa that allow users to digitally swap songs free. All five major music companies--BMG, EMI, Sony, Universal, and Warner--are either losing money or barely making any, and most analysts predict that it won't be long before consolidation forces five into four and maybe even three. Retail music outlets such as Wherehouse and Musicland are closing down by the hundreds. And heads are rolling, among them, legendary Sony Music Entertainment chief executive Tommy Mottola. To regain their footing in a digital world, music companies must find a way to market single tracks to buyers conveniently and cheaply; stave off the pirates who use services like Kazaa and divert billions in revenue from record companies each year; and cut the spiraling costs of grooming new artists. The industry says it is moving aggressively to provide music online to counter illegal downloaders, investing more than $1 billion so far. Meanwhile, retailers are trying to rekindle their own relationship with music buyers by creating subscription services. Companies need to tap into new sources of revenue as competition from DVDs, video games, and virtually every other source of entertainment swells.