Retail group Brazin received a price query (colloquially known as a
“Speeding Ticket”) from the ASX this week after its share price ran up
from $1.47 to $1.595 in a single day. In its response to the query,
Brazin’s only possible explanation related to the 15 February launch of
digital music concept “Fast Tracks”.

Fast Tracks is a major initiative to bolster flagging music sales
through the use of in-store digital download kiosks. However, if this
initiative alone has prompted an 8% increase in the Sanity share price,
investors may be heading for disappointment.

Brazin’s plan is that every Sanity, HMV and Virgin Music store in
Australia will soon feature touch screen terminals where customers can
select music tracks and (in due course) movies for purchase. Material
purchased from a Fast Tracks kiosk can be immediately burnt onto a CD,
or downloaded onto an MP3 player or USB memory stick. Individual music
tracks will be priced at $1.69, in line with the pricing of Apple’s
iTunes operation.

The download kiosk is an interesting experiment for Brazin. Despite the
recent boom in DVD sales, the Entertainment division of Brazin has
achieved EBIT margins of just 2.8-3.0% in recent years, while
comparative store sales increased by just 2% in 2004/05. At its 2005
AGM, Brazin relied on the download kiosk to support the contention that
growth is still possible from the group’s Entertainment division.

However, the success of Fast Tracks is far from assured. The Brazin
system is not compatible with Apple’s iPod system – closing off a
huge chunk of potential customer base. In addition, due to the free
availability of digital music on the internet, the size of the
legitimate market for this product is currently very small.
PricewaterhouseCoopers research suggests that the Australian market for
digital music will be around $0.5 million in 2006, increasing to $14
million by 2009.

These estimates of market size can be compared with Brazin’s
Entertainment sales of $315 million in the last financial year. If Fast
Tracks is to make a meaningful difference to the ongoing success of the
Entertainment division, in-store kiosks will need to grow the market
far beyond the PWC estimates – but as long as iPod users are locked
out, the challenge looks enormous.