Will their artists get burnt as well?

Apparently, not everybody thinks that the recording industry is dying. Starbucks is launching a record label here in LA, and Ryan Knoll over at LAVoice isn’t convinced that it’s a great idea.

The rest of the world is getting away from the bricks and mortar store model in favor of e-commerce platforms, but Starbucks sells one of the few products that can’t be outsourced or sold online, beverages, so it has guaranteed foot traffic in a primo retail locations. So Starbucks could sell anything, but why cd’s?

CD’s are a dying a medium. Eventually they will go the way of 8 Tracks and vinyl, so why invest in them now? (read the rest)

I think Ryan might have missed the point on this one. I don’t think Starbucks is trying to compete with online distribution like iTunes. They’re making a play for a different market, one with enormous potential, and I think they’ll succeed.

You know who the number one music retailer is? It’s not iTunes, or Tower Records (may they rest in peace). The number one music retailer is Wal-Mart. In fact, the top 3 are Wal-Mart, Best-Buy, and Target, none of whom are music-specific outlets. Wal-Mart sales are something of a quiet frustration to the music industry, and not just because they have the retail muscle to affect CD prices industry wide. You know who Wal-Mart sells CD’s to? People who don’t buy music.

They sell to your aunt, who hasn’t bought a CD in years, but will pick up a Clay Aiken CD in the checkout line while she buys 9 pairs of summer shorts for her kids. They’re not interested in courting music fans. Nobody walks into a Wal-Mart and browses the racks looking to discover new artists. Instead, Wal-Mart uses their traffic and product positioning to turn CD sales into an impulse purchase.

starbucks crowdStarbucks has done the same thing with their in-store placement of CDs. They convert traffic and product placement into sales. You walk into their stores, spend 8 minutes in line perusing the menu board while you listen to a continuously running background promo of whatever CD is being sold at the counter, and if you hear a hooky melody or a nice jangely guitar, you decide to pick up the CD. How many people walk through that line in an hour? 50? 100? All with enough expendable income that they’re willing to pay a premium for non-essential luxury goods (you’re telling me that carmel macchiatto isn’t a luxury purchase?). It’s like a record executives naughty dream.

So why get into the production side of the industry? It makes financial sense. Making records is cheap, especially the kind of folk-pop band-jam records that seem to populate Starbucks’ counter space. For $30,000 and a bottle of good scotch, anyone here on this site could knock out one a week.

The real expenses are in marketing and distribution. It’s expensive to get your record noticed, and into retail outlets in a prominent way. Clearly, Starbucks has a lock on providing those two essential elements to their artist roster.

In a typical retail sale of a CD, about half of the sales price goes to the retailer, and about half to the record company. The record company then recoups the marketing budget and the production costs from that half. The artist gets paid a percentage of whatever is left over after that (HA!).

In this new scenario for Starbucks, they now keep not only the retail half of the sales price, but the lion’s share of the remaining profit on the album as well.

What do you think? Does this make sense? Would you sign with the new Starbucks “Hear” label if you had the chance?

19 thoughts on “Will their artists get burnt as well?

  1. Scott

    I think the Wal-Mart effect also stems from many people’s fear of interweb-net-tube technology. Sure, a CD is still technology, but many people need something tangible. Wal-Mart is clearly less expensive than most record stores. Also (ready for the bigoted, overly generalized and probably completely unfounded assertion?) it’s possible that many Wal-Mart shoppers are just thrifty enough to still have dial-up (if anything) and thus downloading albums just doesn’t make sense.

    Of course, my socioeconomic slurs don’t really transfer cleanly to the Starbucks crowd, so I don’t know why I brought it up.

    I think Starbucks is good at taking its own pulse, and if they find that it’s not lucrative, they’ll be quick to pull the plug. If that’s the case, they could perhaps come up with a special deal with iTunes- some kind of coupon code given to individual ‘Bucks customers good for credit towards a “Starbucks feature” playlist, available for download within 24 hours of the purchase. That way, artists still get the Starbucks promotion, and Starbucks can still get a slice of the pie.

  2. Scott

    Ooh! Cross-promotion! Anyone who buys from the “Starbucks Feature” list on iTunes earns points toward free drinks or merchandise at Starbucks locations.

    Looks like Steve Jobs may just get his shot at revolutionizing the coffee industry… just wait, I give him 2 years and we’ll have an iMocha.

  3. ash

    Corey,
    I’m not the greatest singer in the studio but perhaps you’ve sensed some of my dance moves on the “Ten days” project? I’m free from, like, now until 2012. Call me.

  4. Pingback: 100 Things Mostly About Chad, but Also a Few About Erica, and Most Likely a Few About My Kids. at Addison Road

  5. BlogBlightBuster

    BLOGBLIGHT ALERT!

    This blog is infested with blogblight: n. Malicious lies, half-truths, distortions and insinuations perpetuated mindlessly by bloggers publishing misinformation, photos or video from each others blogs, or the tabloids, with no thought to the veracity, authenticity or libelous nature of the content.

    The blight bloggers range from professional journalists (who should know better) down to the celebrity gossip hacks. Similar blight occurs in the other news media (tabloids) as well, but is more pervasive on the internet because of the anonymity accorded many of those who perpetuate it.

    Blogblight undermines one of the basic values of the internet, information sharing. Rather than seeing legitimate and accurate information, internet users see blogblight instead.

    This blog also has a bad case of DumBlight.

  6. michael lee Post author

    [quote comment="70985"]
    … but is more pervasive on the internet because of the anonymity accorded many of those who perpetuate it[/quote]

    Well, that’s kind of ironic.

  7. aly hawkins

    I find myself admiring the passion, even as I recognize how misguided it is. It would be nice to be so sure about something. [wistful sigh.]

  8. Susanna

    Um, I am one of those aunts, but I literally race to the record store to pick up my copy of Clay Aiken’s cds. There is no impulse buying involved at all. Wouldn’t do this for any other artist, but this guy can sing his buns off, and rocks my soul!!!! Can’t wait to travel to his concerts this summer, and will take my young teens with me!

  9. Chad

    I just want to know what DumBlight is.

    Oh, and also I want this little pecker to come back, because I haven’t been in a good old fashioned internet flame war for some time now, and I’ve forgotten how enticing they are. :)

  10. michael lee Post author

    I emailed him privately to extend the offer … no reply.

    I would say spam, but … for what? No links, no product mentioned, no commercial tie-in of any kind. Unless he’s getting paid by some other blog to drive our readers away. That’s just the kind of thing Ben would do, too.

    To the blog-mobile!

  11. BlogBlightBuster

    Michael,

    Please accept my apology for the Blog Blight Alert. Having re-read your commentary, I realize that I should not have posted the alert here. It was way too harsh a response to what I perceived to be the stereotyping of Wal-Mart shoppers. Whether or not you can produce facts to back up your assertions about who among Wal-Mart shoppers buy what kind of music, I should not have assumed that you did no research.

    Again, sorry for the intrusion.

    BBB

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