The demise of Heartbeat Records, a popular store owned by DJ Louis Morhaim on West 10th Street in the Village, signifies a larger malaise in the retail record industry, as the Internet continues to make inroads.

When Louis Morhaim opened Heartbeat Records back in October 1994, the dance-music industry was thriving in New York City. Junior Vasquez ruled the roost at Sound Factory, Crystal Waters was giving us "100 Percent Pure Love" and DJs were still sticking to vinyl as their musical medium of choice. Hence, Morhaim's new business, which catered mostly to DJs and other vinyl enthusiasts, also thrived. Now, exactly 10 years later, Morhaim is closing Heartbeat's doors after a long and determined struggle to keep afloat financially. Like many other independent music retailers, advancements in technology, particularly digital downloading and file sharing, have taken their toll.

"The concerns began to overshadow my passion," Morhaim says. "I realized this was not just a phase, but a trend."

Heartbeat is only the latest casualty in a radical cultural shift that is roiling the music scene in general, and the dance-music industry in particular. Independent dance labels Eight Ball Records, Strictly Rhythm and Nervous have each shut down in recent years as well, as did Eight Ball's retail store.

So how is all this affecting the overall dance-music industry in New York City, where it is centered? Despite obvious negative impact, the situation is far from hopeless.

"It's not necessarily a good or bad thing," says Hosh Gureli, A&R V.P. at J Records. "The technology is here and you just have to run with it." Many DJs, label executives and retailers — Morhaim included — seem to agree. Things are just different now, and those who want to survive in the business will simply have to learn to embrace and work around the new paradigm.

Stores rely on online sales
As labels and retailers continue to adapt to consumer's digital demands, stores like Satellite Records, the popular vinyl resource for DJs which opened in 1993, is relying more heavily on online sales.

"People are not buying as many records now," reports Dennis Sebayan, a store manager and clerk at Satellite. "We bottomed out in the summer of 2002 when everything just died in New York."

Sales grew 300 percent in 1999 and 2000, then just dropped, Sebahan says. The store downsized from 70 to 20 people. He believes the industry is on an upswing, but it's slow and steady.

Sebayan attributes much of this to a loss of the public's interest in dance music, and says the scene is just not as vibrant as it used to be. But he also believes that a conspicuous lack of support from the major labels and corporate sponsors like MTV has hurt as well. With so much emphasis on hip-hop and rap, electronica has simply slipped under the radar yet again. Sebayan's hopeful, though, suggesting there "might be a resurgence of interest eventually, maybe in another two or three years."

Vinylmania's owner, Charlie Grappone, also believes that the natural cycle of change will once again bring dance music to the forefront. But for his business, which deals almost entirely in vinyl, the future is not looking so bright.

He could adapt to the new technology, of course, but either way, insists he will be "the last man standing with vinyl. As a collector, I think downloading music sounds horrible." But he does recognize and accept — to a degree — that the industry is fundamentally changing.

"The music industry is going to be over as we know it," he predicts. "The goal of the major labels [seems to be] to get to a place of no physical object. Soon we won't even need CDs." He also points out that most of his customers grew up with him and his business, but he's not seeing the next generation in the store.

While enjoying immense success in the '80s (he opened his first of five stores in 1978) and much of the '90s, Grappone says that whatever happens, "vinyl is still here today. Tapes are gone, but vinyl is still here."

The disappearance of records is undoubtedly a bigger issue for DJs than for the average consumer. "I'm a vinyl junkie," admits Victor Calderone, the immensely popular DJ who plays primarily gay clubs. "But I'm playing 50 percent less vinyl now."

Sure, it's easier for a globe-trotting DJ to carry CDs; but Calderone believes industry standards are simply changing, thereby forcing even established artists like himself to change the way they do their jobs, sometimes reluctantly.

In fact, Calderone says that Statra Records (and its imprint Statrax), a label with which he has become affiliated recently, has had to rethink its distribution models since vinyl sales are almost non-existent these days. Now most new tracks are released on CD instead.

Artists also migrate to the Web
Calderone has also just signed on with Beatport.com, a new online distribution site catering exclusively to dance music. Calderone says he will soon make his entire catalog available for download to members of the site for a nominal fee, generally ranging between 99 cents and $2.

Peter Rauhofer has reportedly also signed up with the site (along with many other reputable dance imprints), so his ubiquitous Star 69 releases should soon be available on the site as well. Sounds like Beatport could be the perfect one-stop shop of the future for legal dance music downloads.

Nick DeBiase of Centaur Music and Emerge Records is not so sure. "Do they have digital rights management protection encoded in the files that are downloaded?" he asks. If not, then the files could still be copied and traded illegally, thereby leaving the artists and labels in the same boat as before.

Centaur is among the most prolific and high profile of the gay-owned and -operated labels. The other standout is Rauhofer's label, but whereas Star 69 focuses more on individual tracks and artist development, Centaur's gold mine is DJ mix compilations.

DeBiase says sales are down significantly over the last several years, but have started to pick up in the past five to six months. The company is marketing more heavily and employing copy protection on all of its CDs now, which is definitely helping, but bootlegs remain a serious problem. Consolidation of record labels and retail chains as well as the closure of many independent retailers around the country, which are the label's lifeline, hasn't helped either.

But DeBiase remains optimistic. He is also hopeful that a new partnership with a well-respected company to offer downloads, probably within about six months, will help ensure the label's next wave of success.

Like many other "old-school" DJs, Manny Lehman is going to miss the ritual record store shopping that has been such an integral part of his life. He actually began his career as a store clerk at Vinylmania back in the early '80s. Lehman, who is a native New Yorker now based in Los Angeles, later worked as director of dance promotions at A&M Records, where he ultimately discovered Ce Ce Peniston.

Lehman marvels at how much the dance music industry has changed in the last few years. "The labels are not signing artists or remixing as much as they used to," he laments. "The 'mom & pop' idea has to change." Singles used to sell 45,000 to 100,000 units. Not anymore.

This past week, Billboard magazine, the industry's Bible, hosted its annual "Dance Music Summit" here. During one seminar, "Download This: The Future of Digital Distribution," a series of questions were question raised: Is illegal file-sharing history? What new business models are on the horizon? How are subscription services faring? What brings customers back to your music service? Is the 99-cent single the best pricing policy for digital?

Whatever the answers to these questions, one thing is certain. According to Louis Morhaim, "Dance music is not dead. It's just in a light coma."