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June 11, 2008

Music Licensing Revenue Drops in 2007

I saw this story and wanted to highlight the relevant passage for my readers:

"Music fell by the largest margin (5.5%) to $125 million from $132 million in 2006..."

I've highlighted this before, but let me address this issue again.  This is no time for any artist, songwriter, label, or music publisher to be turning down revenue-enhancing opportunities.  This is no time to rest on one's laurels when a licensing request comes in and sit on it until the requestor is forced to go to another party to get what they need.  There is a glut of quality music supply, so the licensee, the buyer, holds the upper hand, not the licensor.

But licensees, as George Costanza might say - you've got hand.

June 09, 2008

Wal-Mart Exclusives Redux

The NY Times chimes in with more on the general trend at Wal-Mart for their artist-specific exclusive.

Some further thoughts - from an artist's perspective.  With all due apologies to the Coalition of Independent Music Stores (CIMS) - who are doing a fantasic job waving the banner of the traditional music retailer - has music retail been so eviscerated that we no longer care where we buy our music from?  If that is the case - and I believe that it is - then labels and artists need to strategize whether releases need to be marketed to a wide swath of retailers, or just to a single retailer, to garner the proper sales impact.

In the world of "alternative distribution" labels are seeking to place their commercial product into so-called "non-traditional retail."  They seek to get chains to buy a few hundred or a few thousand copies of CD releases which are also marketed to traditional record retail brands.  But hasn't the recent history of Wal-Mart, Best Buy, and Target shown us the key to getting the most out of a retail partner is to get that partner to double down and commit to an exclusive that retailer needs to provide marketing for?

There is a downside to all these exclusives.  Some people just don't wish to go to Wal-Mart to shop for music because they want a more memorable music shopping experience.  They want to be able to browse through many more CD titles than Wal-Marts stock.  But artists are saying to the consumer: "I appreciate that you may cherish a different kind of music purchasing experience, but I just want to get my record out to a mass audience with as much marketing and as cheaply to you, the fan, as possible.  I care less about your music-buying experience than in your 'buying MY music experience.'  Wal-Mart delivers the best value to you on that front."

We all know the "long tail" can't be replicated at brick-and-mortar retail.  The question is now: are retailers (figuratively) cutting off most of the body and selling just the head, the top tier of marketable artists?  Is this the trend which will leave most music shoppers left with no physical place left to shop for even basic CD product selection?  Will Amazon win with these music fans just due to competitive atrition?

June 08, 2008

Wal-Mart Strikes Again - AC/DC Exclusive

Retailers everywhere - those who merchandise music and those who don't - take note - if you want to include among the ranks of your customers fans of The Eagles, AC/DC, Journey, Genesis, and Bryan Adams - kiss that thought goodbye.  Because Wal-Mart, long rumored to be reducing their footprint in physical CD sales, has wrapped up all of these artists to sell their current or future CD releases exclusively at Wal-Mart.

First up, and the biggest coup for Wal-Mart was The Eagles, one of the best-selling groups of all-time, a group who had not released an album in close to 30 years.  Wal-Mart secured an exclusive on their new album and has sold (according to reports) over 3 million copies of Long Road Out of Eden.

Bryan Adams followed with a U.S. territory exclusive in May.

Journey just released their new album via Wal-Mart this week.

This week Wal-Mart partners with Genesis for an exclusive release of a 3-DVD set.  I love this quote from genesis keyboardist Tony Banks:

"Wal-Mart puts 100,000 of this DVD out there and feels like it can sell that many, which I think will be an awful lot better than the last few things we've done," Banks said. "You have to look at it that way."

And now, another superstar joins the Wal-Mart exclusive ranks, none other than hard rock powerhouse AC/DC (subscription required - link to Reuters/Yahoo here).

So, while record retail is tanking, and Wal-Mart itself, as well as retailing giants Best Buy and Target shrink music floor space... while Borders closes stores and puts itself up for sale... while Transworld continues to shrink shelf space devoted to music... while Handleman gets out of the music merchandising and fulfillment game altogether... Wal-Mart is still cleaning everyone's clock by locking up the TALENT people spend money on in the CD category.  I know Target has done a few exclusives too, but their profile is much smaller.  Best Buy - with their previous Rolling Stones and Elton John DVD exclusives - has also stepped up to the plate before.  Starbucks Coffee Company's Starbucks entertainment division signed record deals with Paul McCartney, Joni Mitchell, James Taylor, and others, but those releases were also released through normal record retail channels.  But Wal-Mart is very savvily locking up the acts that will make customers drool with anticipation over - will a Guns 'N' Roses deal for Chinese Democracy be next... if Axl ever delivers the record?

So my blunt question to all the retail chains out there, whether you be a mass merchant, supermarket chain, specialty retail chain, or regional or national department store is this: WHEN ARE YOU GOING TO STEP UP AND LEARN THE LESSON WAL-MART IS TEACHING?  That lesson is simply this: you need not reinvent the wheel by offering up an innovative product to help drive people into your stores.  You do not need to invest in the "next big thing" when there are major known quantities with brand equity and customer/fan loyalty you can tap into - who have specific relevance for your retail brand.  But you do have to be bold and act!  You have to get in the game.  You have to realize physical music product - CDs - can still boost traffic and get new customers into your stores.

How many Eagles and AC/DC fans do you think there are?  MILLIONS!  How many times have people walked into other stores merchandising music and asked for the Eagles CD, only to be told that it is available exclusively at Wal-Mart?  How many people who don't frequent Wal-Mart often - or EVER! - were compelled to purchase that Eagles CD at a Wal-Mart location or from Walmart.com?  How many Wal-Mart shoppers who frequent the store often feel that much more loyal to the Wal-Mart brand?

Now ask this question: when is YOUR RETAIL BRAND going to use the power of music to elicit that kind of a reaction in consumers?  Being daring doesn't mean being stupid.  Even Wal-Mart didn't commit to more than 100,000 copies on the Genesis DVD.  Decisions about merchandising an exclusive album of new material from an artist require a solid grounding in the landscape of the music business, but, more importantly, a clear picture of one's own retail business, specifically:

  • Who is the brand's core consumer?  What can offering an album exclusive bring to these core consumers - and what NEW consumers will this exclusive seek bring into the chain's stores?
    What is a reasonable minimum "guarantee" of units your chain would commit to on a one-way, non-returnable basis to get an album exclusive?
  • What types of marketing efforts can your brand provide to support such an album exclusive effort?  Can you market the product via the following channels: brand web site, CRM efforts, print and/or broadcast advertising, mobile marketing, PR, in-store marketing and merchandising, store-level mangerial and associate support, operations and logistics, and direct marketing?
  • What can the artist's marketing offer your brand as you embark together on a mutually beneficial relationship?  Does the artist tour regularly?  What is their online/mobile marketing strategy?  How can the artist incorporate their partnership with your retail brand into their radio promotion efforts?  Are there other touchpoints where there are synergies (i.e. Does the artist shop for themselves or for their family at your chain?) that can be addressed?
  • Who is your brand talking to to initiate these deals with artists?  More than ever - veteran artists with strong followings are cutting their ties to major labels and launching their own, independent labels.  Younger artists trying to work outside the major label system are also hungry to be given a chance at these types of deals - and would probably accept much lower unit guarantees and retail brand financial commitment to do so.  Each retail brand needs to decide what their goals are in approaching an artist for a deal like this.  Is it to prove that the brand is a relevant lifestyle choice for a particular demographic?  Is it to purely drive in increased foot traffic?

But these questions, and their answers, are brand-specific.  Do your brand a favor and start asking some of them.  Or just sit back and watch Wal-Mart continue to eat your lunch.  There is no reason for a retail brand of 100+ stores to think "doing a music exclusive is out of our company's reach or scope."  Latch on to the incredible passion found in your consumers.  Discover what they are passionate about and deliver that.  It doesn't matter if you're a specialty fashion retailer or a quick serve restaurant - the right music can drive traffic and profits and get your brand closer to "top of mind" in the consumer's brain and emotions.

May 29, 2008

360 Deals: The Missing Ingredient - Expertise

These days you can't get through a music blog or magazine without encountering the term "360 deal."  The term refers to record labels, who normally manage the recording (and sometimes the music publishing) careers of their artists, seeking to expand their influence into artist management, concert/event booking, merchandising, etc...

There have been stories pointing out success stories (from the label perspective) and warnings to acts to not sign these types of deals.  Why the warnings?  Because the labels lack the infrastructure and expertise in the areas of business they wish to expand into.  The ticket companies and concert promoters such as TicketMaster and LiveNation have been steadily acquiring the top merchandising companies.  Management firms like Irving Azoff's FrontLine Management have been snapping up key artist management talent - the star makers behind the stars.  The legal eagles representing the artists have not jumped ship to sign up with the labels.  And, lastly, most of the big booking agencies like ICM, CAA, and William Morris have retained their talent as well.

So labels are asking for a bigger share of the pie, but not proving they can deliver the services required for the artist to feel they would be getting more bang for their buck in a 360 deal.  Nor are they addressing the inequities and lack of royalty accounting transparency within their traditional sphere of influence, where artist managers and lawyers usually have to fight against the label hierarchy to achieve a just outcome for the acts they represent.

So imagine my shock when I read today in the New York Times that Universal Classics and Jazz would be opening up a full-service management practice for label artists, and that the entity would actually be run by someone with expertise in that arena, Jeffrey Vanderveen, formerly of IMG Artists management firm.  This entity still needs to learn how to fly (and with IMG suing UMG and Venderveen - it may not), but if it does, then it may prove to be a working model for how the rest of the industry on how to properly create an environment where the artist feels taken care of via a 360 deal.

Will the industry begin to win over the managers and agents, bringing them on board the label mothership?  Chances are they won't.  But this shows some level of understanding; acts want to be with people they trust.

April 25, 2008

Starbucks Downsizes its Entertainment Ambitions (With Update)

It was just a few months earlier I was predicting how Starbucks Coffee Company's Starbucks Entertainment unit was overreaching.

In the midst of CEO Howard Schultz's revamping of the company Starbucks has decided to hand over the music operations for its Hear Music label venture to partner Concord Records.

But I think it should be emphasized that Starbucks's music initiative lost steam because they lost touch with what made their music effort cool to begin with.

  1. Starbucks concentrated on music that gave its stores a cool vibe: jazz, blues, classic R&B, classical, singer-songwriters.
  2. The Starbucks customer spends a lot of time in the store: ordering, waiting on line for their order, and, if they choose, drinking their order in the location (or just working on their laptops).
  3. Starbucks, while they have some teen customers, is clearly more focused on the adult market.  This is a demographic that is not as active a music consumer as teens and college-age students.  They want the commuter, the office worker, the business traveler.  Starbucks, when they practiced a more honed musical aesthetic, found an easy audience in these demographics.

When any brand seeks to make themselves an arbiter of cultural taste the focus needs to be tight.  It can't be all things into all people.  When Starbucks Entertainment was launched in the wake of the Genius Loves Company Grammy-winning triumph it undid much of the good work the Hear Music team had accomplished in building to that particular moment.  It chose more mainstream material and allowed themselves to get involved with labels trying to market new acts which did not fit within that previous core aesthetic.

It's a cautionary tale.  A strong focus on music to help drive profits and branding initiatives has to take into account the brand's customer base and how that customer interacts with the brand.

UPDATE:  Great minds think alike; Charlie Moran from AdAge.com's Songs For Soap Blog is also thinking the Hear Music division of Strabucks suffered more from lack of focus.

And, as large as their ambitions were, I'm also now thinking that Hear Music got mis-directed.  All of that early emphasis on jazz, classical, folk, blues, and singer-songwriters; think how much influence the company could have wielded (and may yet still wield) in introducing and/or touting artists of significance in those more eclectic genres.  Their customers are yearning for something great, something special, out of their music.  And even with the instant familiarity of the artists in recent projects you just can't create a cultural phenomenon out of a normal Paul McCartney album release, nor out of a live James Taylor greatest hits record.  And, sadly, lest we forget, a lot of the buzz behind Genius Loves Company started happening in the culture only once Ray Charles passed away.  That ain't gonna happen twice.

Whither the Car Stereo

I caught an article today in today's USA Today on how consumer electronics companies are now offering CD-player-free car stereos.  These are not OEM-installed systems, and automakers would be wise to continue having in-dash CD players as standard features on new vehicles.  Their customers have invested heavily in CDs over the past 25 years, despite the sharp downturn in CD sales this decade.  Even rampant downloaders do a lot of burning music to CD.

Car makers should definitely look to add on options which allow MP3 player owners to use their players in conjunction with car stereos.

As it is, there are still plenty of cars with cassette/CD players, and there are plenty of peripherals one can buy to stick an MP3 adapter into the cassette deck.

The transition to an all-digital music economy is moving rapidly, but those who stick with physical product aren't necessarily Luddites to be shunned, just as people who want to shop at brick-and-mortar stores for certain items they can buy on the web aren't technologically backward.  They just have preferences which are ingrained, preferences which shouldn't be ignored by marketers.

March 27, 2008

Paradise City is Filled With Dr. Pepper

A few months back I ripped Dr. Pepper for running one of the most contrived music tie-in promotions I've ever seen.

This week the brand revealed a new music promotion that is so patently absurd it might be genius. 

Just about any music fan or industry employee knows that the world has been waiting for 17 years for the massive rock band Guns N' Roses to release their $13 million+ new recording "Chinese Democracy."  Whether or not GNR will actually ever release this money pit of a record has been an industry parlor game for years.  The band has launched intermittent, controversial tours, and even performed on the MTV Music Video Awards show - all leading to speculation about album release dates and final album track listings.

Dr. Pepper decided to take that parlor game to new heights by pledging to give everyone in America a free Dr. Pepper if GNR releases "Chinese Democracy" in 2008.  I find the effort to be laugh out loud funny.  It's a promotion run solely to give the brand some free PR - and it's working incredibly well.  The effort got coverage in the NY Post and W. Axl Rose himself has responded to the "Dr. Pepper challenge."

Here's the Dr. Pepper/GNR blog link.  I give Dr. Pepper kudos for having the cojones to actually execute this effort when so many brands are plain timid.  While every brand measures results based on ROI it's nice to see a fun idea with very little "I" just be allowed to have its own life

When you can even get a recluse like Axl to play along with the gag, then you know the brand struck the right tone.

March 19, 2008

What is "Selling Out?"

NOTE: Sorry - I started this post last week and just had the time to get it out today.

A discussion I've heard far too often, both among music industry personnel and those in the media and in the corporate marketing world, is that of trying to define what "selling out" is in terms of a musical act's relationship with a corporate brand.  On the one hand, it is an accepted fact that many acts need some kind of corporate involvement at certain times during their careers to help them financially or with major exposure boosts.  On the other hand, the artists themselves are rightfully wary of aligning themselves with brands in ways which leave them open to criticism from fans and press alike.  An article by Charles Moran in this week's Advertising Age explores this topic again.  Charles also co-writes the great Songs for Soap blog for AdAge.com with Mike Tunnicliffe, which explores the many different brand/artist interactions taking place these days.

One thing rarely discussed is this: artists - ALL artists - need to "sell out" to corporate interests at some stage in their career, and often this involves the corporations they align with the closest and with the highest stakes for their longevity - namely their own record labels and the radio stations/video outlets (and the conglomerates which own them).  Even in this digital, DIY age the large majority of artists seek to be signed by a record label so the label can provide marketing, PR, radio promotion, and distribution of their recordings.  Once the act has music to be released, then they need to go out and promote their single across the radio stations and video channels/outlets which they depend upon to drive their music up the charts, thereby driving album sales and the revenue they might receive based on that airplay.  Yet the major labels (and those indies which are divisions of major corporations) and the big radio conglomerates use music to their own ends just as any corporate brand seeking to license the content from those acts. 

How many artists feel their careers were mismanaged by their labels, both when they were current artists, and with their catalogs after leaving a particular label?  Too many to count.  Those corporations keep cutting staff and roster acts as the industry's physical sales woes increase.  They also have lousy reputations for being dishonest in their accounting to the artists they rely on to develop the content the companies are based on.  But those labels are still the key engines for allowing artists to create and distribute their art as efficiently as possible across a wide range of media.  Even the band Birdmonster, once touted as a completely DIY outfit in Chris Anderson's classic business book "The Long Tail," has signed to a label.

How many artists decry how radio airplay decisions have been centralized by corporate behemoths, leaving virtually no local station autonomy and relying almost solely on audience research to make programming decisions?  How many fans hate when radio conglomerates change station formats in their local markets, thereby leaving music fans deprived of easy access to certain kinds of music?  Radio conglomerates especially just use music to sell advertising time and advertising programs to marketers.  So, in essence, while artists use radio to air their songs, the stations use the music to draw in audiences attractive to advertisers, and the artists have ZERO SAY in what advertising those stations play around their music.

Even the venue owners, ticket sellers, and concert promoters are large corporate entities which must be dealt with: Live Nation, AEG, Ticketmaster, etc...  and these companies all have divisions which deal with artist fan clubs, merchandising, and other key parts of the artist's live performance and ancillary revenue streams.

Many artists who would refuse any proactive alignment with a particular brand nevertheless do not complain when particular retailers, hotels, restaurants, banks, health clubs, etc... have in-store music systems which include playlists featuring their own music.

So, let me use a rather crude analogy.  Much as Mademoiselle Rimbaud, the busty French girl pleading to Mel Brooks's King Louis in "History of the World, Part I" pleads she simply does not "do it," I reply to those artists who think they aren't already neck deep in corporate involvement with the King's blunt response: "Come on.  You know you do it.  We all do it.  We love to do it."  There is always a price to pay for releasing one's art and striving to have it make an impact on as mass a scale as possible.  There is always a beast which needs to be fed.  And if you want to achieve mass success, then there is always a game to be played to fire up the engine of that success and keep it running smoothly... which doesn't mean there aren't conscious choices artists shouldn't exercise, just that any claims of artistic purity are proven false on prima facie evidence alone.

Noted music supervisor Josh Rabinowitz of The Grey Group writes a bi-weekly column for Billboard magazine entitled "With the Brand."  In last week's column (no link available through all my search efforts) he espoused the virtues of artists "selling in" to the world of music licensing and doing music promotions with brands.  Why?  The answers are obvious.  In an interconnected world where one is more likely to hear about a video via YouTube than MTV, or hear a new band or song on MySpace or "Grey's Anatomy" than on commercial radio, then the choice to be anything but completely channel agnostic is short-sighted thinking.  Yael Naim and her song "New Soul" are part of the cultural zeitgeist due to an Apple TV ad.  And both the artist and the brand can measure their success together.  Since her song was featured in the ad her download sales have been significant, and Apple can actually, in some fashion, track how much consumers are paying attention to its advertising by watching that immediate reaction.  Similarly, the company can also check out how many YouTube views of its commercial have been seen by consumers, and, as Yael Naim's record is released, how many albums she sells and her success in the digital and mobile arenas - in great part to her association with the brand.

Haven't those been the great questions marketers consistently seek to answer: "How can I quantify the effectiveness of the advertising my company and/or marketing agencies is producing?  How can I tell, in this TIVO/DVR world, if people are just skipping through my company's ads and ignoring them?"  The measurements above are imperfect to be sure, but they are still measurements one can gauge effectiveness by.  Was there any shot "New Soul" would have received any consumer attention in today's oversaturated media marketplace without a major ad or television licensing opportunity such as the Apple ad?  Did she stand any chance at garnering radio airplay of any significance?  No way.

The quotient may be different for some older tracks or artists whose music is used in such a way, but not by much.  90s dance star Haddaway had his once-ubiquitous hit "What is Love?" licensed for a diet Pepsi Max ad aired on this year's Super Bowl.  He had a tremendous increase in download sales after the ad was aired.  Was it an increase the Diet Pepsi Max brand manager thought was significant given his multi-million dollar media buy for the Super Bowl?  Who knows?  But it at least gave him some quantifiable evidence to suggest the ad was the sole reason for that sales increase.

Production music companies are more than happy to be to taking corporations' easy money and leaving the moralizing to the artists with egos who find these opportunities to be analogous to selling one's soul.  There is a market to be served and they are glad to serve it as efficiently and cheaply as possible.

So every artist needs to take a step back and truly ask themselves this: if they are willing to give up their masters to one company - the record label, or if they are willing to go and provide programming to radio conglomerates who don't have any vested interest in music per se, then why are other types of brand partnerships taboo?  They shouldn't be, and if you don't think fans realize this, then you're selling yourself... short.

February 16, 2008

Another Ray of Hope for Record Companies & Artists

What we know about the record business is this: the legal digital download market, while growing, is not growing fast enough to negate or offset either the downward turn in CD sales or the illegal downloading market.  Labels are in deep trouble.

And while the labels are now busy making all their tracks DRM-free for certain online retail partners such as Amazon, it's ironic that two of the industry's new cash cows relies on closed systems: the popular video games Rock Star and Guitar Hero.  Both games offer the user the abvility to upload additional tracks to the game... and the results are phenomenal:

In the two months since MTV Networks and Harmonix released the music-based videogame "Rock Band," players have purchased and downloaded more than 2.5 million additional songs made available after the game's initial distribution.

Activision, meanwhile, said it has sold more than 5 million new songs via download for "Guitar Hero III: Legends of Rock" since it began adding downloadable content in early November.

Now Aerosmith has upped the ante for artist involvement amidst this robust environment for interactive music video games.  My question is why every other major guitar-centric rock band of the past 4 decades isn't doing the exact same thing?  Led Zeppelin.  Lynyrd Skynyrd.  Black Sabbath.  KISS.  Bon Jovi.  Ozzy Osbourne.  Etc...

It's so typical that a band which specializes in resurrecting its career over and over again gets the big picture - an artist's masters and copyrights are assets, and those assets need to provide continuous income or lose value.  And why have one's tracks appear on Guitar Hero via generic game characters when they could appear with the band's own iconic images and patented stage moves?  THIS is how a band introduces new generations of fans to its music while not alienating core, older fans.  And THIS is how to initiate and execute a brand extension properly.  This partnership doesn't mess with the soul of the band or the brand.  It enhances both (as opposed to, licensing "Dream On" for a Buick TV commercial after doing a killer automotive deal with Dodge just a few years earlier).

These games are important to the industry not only because of the obvious licensing revenue and digital track upload potential, but because the downloads take place via a closed system; the tracks work on the games, not your mobile device or digital library/service of choice.  No free downloads here.  This is mostly good news, but it also means the labels are going to look at this and say: "Instead of releasing new music or licensing our catalogs via the Internet, we will now seek to also develop solid revenue streams via closed systems where we have more control, and consumers need to buy music to obtain it."

January 24, 2008

E-commerce Sales of Physical Product - Revisited

As I mentioned in my last post - sales of physical CDs were up 2.4% at E-commerce sites last year.  E-commerce sites can offer up wider selection of product, allow customers to listen to audio clips of tracks, and peruse editorial and customer reviews of the album.  What the E-commerce experience lacks in immediate customer gratification it gains in terms of ease of shopping experience.

Yet sales of albums at E-commerce sites represent just 6% of overall album sales.  For labels with huge catalogs facing further consolidation of record retail floor space E-commerce sites represent the last best hope for the compact disc.  So where is the great marketing effort on the part of the major labels, the RIAA, and independent labels to drive customers online to purchase physical product.  This does not mean shunning label retail partners.  So many major music retailers have online sites which sell music as well.

But it also broadens the number of accounts the distribution companies ought to be targeting to sell physical product (and digital music as well).  So many "non-traditional" retailers operate E-commerce operations.  Why not get these accounts to test the viability of music sales via their web site?  How can the labels get these retailers to give them visbility on their site?

The point is this: in this area where the labels have a growth story to sell we hear little from the industry touting this success.  Now is not the time to play possum.  Now is the time to flaunt your plumage like a peacock and go out and convert the non-believers.  CDs, especially catalog and deep catalog in this current market, need to be championed.  Get out there and grind it out!

January 10, 2008

The Case for Record Retail Shelf Space Takes Another Hit, But Online... Another Story

Barnes & Noble reported weaker than expected fourth-quarter projections based on weak CD sales at the chain.  There have already been numerous rumblings about further decreases in shelf space for CDs at major chains like Wal-Mart and Best Buy.  Virgin Megastores is closing some locations.

This, on the heels of a 15% decrease in demand for album sales at record retail as a whole in 2007 - it doesn't paint a pretty picture... although sales of physical CDs via e-commerce sites experienced a 2.4% increase.  To me, that points to: A) how decreased selection at physical retail is forcing consumers to look online for titles which, until recently, could be found at major chains, and B) how the online record retail experience has just become more consumer-firendly than the physical record retail experience.  If you are starved for time - and who isn't - then going online first makes a ton of sense.  This development also illustrates "long tail" economics to a tee.