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In recent months, the record company NMC has begun to distribute CDs in stores with one-minute previews from upcoming albums. The give-aways, from CDs by new groups such as 7 Zero, have been distributed at special counters. The complete versions have sold well afterward, without advertising and public relations, according to NMC managing director Zeev Schlick.

This unique marketing method is only one of the steps Israeli record companies have taken to deal with the multiple plague of illegal disk copying, a downturn in the economy and a public turned shopping-mall shy in the face of terror attacks.

Over half the CDs sold today in Israel are pirated copies, which means both the artists and record companies don't glean any income from the illegal trade.

The intifada has only exacerbated the recording sector's woes. The public is reluctant to go to shopping malls, where most record shops are located, and sales have consequently declined.

Since the terrorist attacks on September 11 in the United States, tension has increased even more, and the general slowdown in the economy has been evident in the music market as well.

Executives at large record companies admit that the situation has forced them to rethink their strategies. "The company is trying to use human resources more efficiently and to cut down, in order to become more aggressive, and bring more people to stores," explained Schlick.

"The Israeli music market enjoyed years of growth, which I believe reflected mainly the buying of CDs to complete private record collections. The public bought CDs to replace their old records. But this process is finished. The hysteria surrounding the acquisition of songs on Internet sites such as Napster has died down," he said.

Nevertheless, he estimates those who used the software have turned into loyal music customers.

Schlick, who came to NMC from the high-tech firm Converse, believes the music field is stable in comparison with his previous field. NMC has reached the conclusion that it is impossible to compete with the price offered by pirate companies, so is firm has decided to emphasize the superior quality of original CDs, the ethical issues and the risk involved in buying pirated albums.

Nevertheless, he notes, "We also have to pass the [proposed] law that enforces the prohibition on pirated CDs, which the justice minister has had on his table for several months."

Schlick says a few albums have helped NMC to get through the past months: "Yehuda Poliker's last CD, for example, which was sold in almost 40,000 copies, Gali Atari's collected songs, and Leonard Cohen's latest album. In the coming months a Pink Floyd collection will be coming out, which we anticipate will be a popular CD, as well as a new album by Britney Spears, the classical repertoire of EMI and others."

Schlick says that in spite of the strong competition among companies, there is no price war, and no need for one. "That would harm everyone." He is referring to the Hed Artzi campaign called "Hataklitiya," which took place between May and September, and in which old titles by the company were sold for NIS 33 per CD.

Danny Weiss, managing director of Hed Artzi Music, says that over 650,000 CDs were sold during that campaign. "The campaign did in fact cause a lowering of prices, and I am not hiding the fact that that is one of our goals," explains Weiss. "There is no justification for a CD to cost $20 in Israel. Whoever sells CDs at such prices shouldn't be surprised that people don't buy them."

Nevertheless, Weiss acknowledges that since the beginning of October there has been an additional slowdown in Hed Artzi sales. "This was our worst Rosh Hashanah in at least five years, and our assumption is that 2002 will be at least as bad as 2001."

Earlier this week, the company announced the departure of Miki Tunis, general manager of Hed Artzi Multimedia. "The company wants to streamline its operation and to combine departments," he explained. In recent months, Hed Artzi has been forced to lay off 15 percent of its workforce, and now has about 40 employees. "Companies have to cut back, even though that is not what will revive the music market," says Weiss. "We are concentrating on projects that are worthwhile for us. If we do projects promoting new artists, which we know for a fact will pay off only starting from the third album, we will invest less in them, so that they will at least return the investment."

Weiss mentions the albums that have sold well in recent months, and improved the company's balance sheet: "Yoshvim B'veit Cafe" by Tipex [also known outside Israel as Teapacks] (about 40,000 copies), "Olam Hamayim" by Danny Sanderson (about 15,000 copies), the collected songs of Natasha's Friends (about 15,000 copies), and the new CDs by Sarit Hadad and Eyal Golan, which the company only distributes.

Weiss says that the album by Hachalonot Hagvohim, which is considered an Israeli classic, sold about 20,000 copies during the "Hataklitiya" campaign.

Hed Artzi is now pinning its hopes on several CDs that will be coming out during the coming year: new albums by Shlomo Artzi and Gidi Gov, a David Broza album produced by Izhar Ashdot, and new albums by the Hayehudim band (whose previous albums are still being sold), Hemi Rodner and Shmulik Kraus.

"We are a normal industry, which is not supported by the state, and only contributes to it," says Weiss. "If they don't enforce the law to prevent pirated copies soon, the country will find itself subsidizing companies that until now have done well."

Itzik Alsheikh, joint manager of Helicon, is not optimistic, either. He says that the music market is in a state of continual decline. He notes that although the album by Rami and Rita Kleinstein sold 75,000 copies, and brought the company good earnings during the holidays, putting the other albums in the shade, "that was just a localized success."

Two additional successes of the company are Arkady Duchin's "Lehargish," which sold over 40,000 copies, and Yehudit Ravitz's album with the Israel Philharmonic Orchestra, which sold about 15,000 copies.

"We have special sales all the time, but it is hard to bring people to the stores, and some of them are closing," he says.

Alsheikh mentions a number of the artists who will put out new albums during the coming year, and will perhaps succeed in improving the situation: Ivri Lider, whose two previous albums sold about 40,000 copies, Rami Fortis, who will also go on a performance tour, and Amir Benayun, whose previous album sold 40,000 copies.