Appetite For Disruption

2008 U.S. Music Purchasing Data Out - Major Declines Reported

The year-end U.S. music sales figures are out.  There is a slew of negative data in this report.

But, as any reader of this blog knows, I have long been an advocate of "non-traditional sales," both for physical goods and digital music products.  So, after reading through the negative news here comes this "factoid:"

Album sales at Non-Traditional music outlets (digital, internet, mail order, venue, non-traditional retailers) hit an all-time high in 2008 with sales breaking the 100 million mark for the first time.

Non-Traditional is the only strata that experienced album growth over the previous year; with an increase of 15% over 2007. Non-traditional outlets account for nearly 25% of all album sales, compared to 18% in 2007, 12% in 2006, 9% in 2005 and 5% in 2004 (4% in 2003).

Digital services account for 65% of the Non-Traditional album sales.

That's not a silver lining so much as proof that non-trad. could have been a much more powerful force in the market before it was economically necessary to seek out those accounts.  Now it just looks like opportunity lost.  The labels made their bed with the mass merchants, and now they have to lie in it.

More on the Wal-Mart-AC/DC Exclusive

From AdAge.com - another post-mortem on the Wal-Mart way of doing CD exclusives.

But I hate that Wal-Mart logo sitting where the lightning bolt in the AC/DC logo ought to be.  Never ever, EVER, compromise the logo.

The exclusive deals have become a "good business model for us," said Jeff Maas, divisional merchandise manager for music and movies at Walmart. "They tend to drive excitement into our stores. They keep our stores new and fresh. And so you'll see us do more."

So, once again, here is the retailer stating there is a VALUE in developing these exclusives which creates a "halo effect" for the retailer's marketing and overall merchandising efforts... and only the big box retailers are stepping up to differentiate themselves in the market.  Where are the specialty retailers who are much more lifestyle-focused developing these partnerships?  Other than Starbucks and Victoria's Secret - where are the specialty chains who have ever stepped up strong in this arena?

Walmart and the bands win because the retailer can merchandise a wide array of apparel and other related products in major in-store events, helping promote concert tours and move products beyond CDs in ways no other retailer could.

Consumers win because the deals include album prices well below the industry standard for new releases, such as $11.88 (with free shipping when bought online) for AC/DC's "Black Ice." Rivals such as Virgin or Tower Records have had no qualms about selling imports or simply reselling CDs bought from Walmart at $14.99 to $16.99 without topping their usual price points for new releases by much.

Imagine that - sell music for a reasonable price, with solid marketing, and merchandising backing the effort.  What a simple concept so many retailers could adopt vis a vis music exclusives.

Not every musical act means the same to all audiences.  Retailers should be combing through label rosters looking for the right act to partner with on such an effort.  There's a glut of musical supply out there for retailers to choose from.  Retailers are facing enormous bottom line pressures right now, but they need to get noticed, and great music  certainly has the power to do just that.

CD Exclusives at Retail - Redux

Here's a nice overview of a few recent account-exclusive CD releases at Wal-Mart, Target, and Best Buy from HITS magazine.

I've addressed this issue several times, most notably here, here, and here.

Here's the one passage of the HITS piece which disturbs me (italics mine):

The most recent big box exclusive, Chinese Democracy, sold only 255k in its first week at Best Buy and a deleterious drop off to around 56k in its second, a disappointing total blamed equally on Axl Rose’s lack of promotion and limited cooperation from Interscope Geffen A&M, which lacked the incentive to do much, having pocketed the initial check for $14m, the revenue from the approximately 1.6 million sold one-way at $8.75 a pop. On the other hand, the label’s been complaining about the lack of visible marketing support from the retailer, so let the finger pointing begin. Despite the glitches, most believe Chinese Democracy did better than it would have with a normal release.

Lacked the incentive to do much?  How about the incentive to maximize revenues and profits?  How about seeking to create a bright spot in an otherwise dismal retail landscape?  How about driving catalog sales on GNR and other UMG current and catalog acts at Best Buy with the GNR fan base coming in to buy this record?

If it's all about the paycheck, then why the hell did Axl do this deal?  why did he hold onto this record for so long?  Why try and claim any artistic high ground as he recorded and re-recorded and mixed and re-mixed this album with various casts of characters in the decade+ he has been working on this album for?

If it's all about the paycheck for the record label, then labels can't expect retail to want to do these exclusives and be enthusiastic about them.  Why?  Because they are pulling the weight with no label support.  The AC/DC example is the complete opposite of the GNR situation, as they were an integral part of the marketing, PR, and radio promotion effort to drive the sales on Black Ice, and continue to do so.

Partnerships don't have to be equal per se, but they ought to be equitable.

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.